A Lot Size is used to express how many currency pairs you want to trade. Different lot sizes exist to make forex trading affordable to those with small account balances.
Lot sizes are also useful in risk management, because when volatility/uncertainty is high in the market, you can switch to a lower lot size.
Trading smaller lot sizes will help you limit your losses.
Some forex brokers also use lot sizes to restrict the activities of beginners. For example Cent & Micro Account types are usually restricted to trading small lot sizes only.
We will discuss the different lot sizes in forex & how to use them to your advantage.
Types of Lot Size in Forex
1. Standard Lot Size
Traditionally depicted by the number ”1”, a standard lot represents 100,000 units of any CFD instrument you are trading.
When you enter the digit “1” into the volume box, you are telling the system that you want to trade a standard lot (meaning 100,000 units).
You can also trade multiples of a standard lot so if you enter the digit “2“, you are telling the system you want to trade 2 standard lots (meaning 200,000 units) etc.
2. Micro & Mini Lot Size
Micro & mini lot sizes represent fractions of a standard lot.
What Does a 0.1 Lot Size mean?
When placing your order if you enter “0.1” into the volume box, you are telling the system you want to trade a micro lot.
A micro lot is 0.1 of a standard lot meaning (0.1 x 100,000 units) = 10,000 units.
What Does a 0.01 Lot Size mean?
If you enter the digits “0.01” into the volume box, you are telling the system that you want to trade a micro lot.
A micro lot is 0.01 of a standard lot meaning (0.01 x100,000 units) = 1,000 units
As a matter of fact, 0.01 lot size is the lowest you can go, most brokers will not allow you trade less than 0.01 lot size.
0.01 is the minimum lot size any broker will accept in forex trading.
What is the Best Lot Size for a Beginner?
The best lot size for a beginner is a Micro (0.01) Lot Size because your risk exposure is low when trading micro lot sizes.
Your losses come in multiples of $0.1 when trading micro lots & this is a bearable amount to lose.
When you are trading micro lots, don’t expect to make big profits. Understand that your profits will come in multiples of $0.1 so focus on learning & not earning.
One major reason why beginner traders lose money is because they want to make a $100 profit when trading a 0.01 lot size.
This makes them refuse to exit the market even when the tide is moving against them.
You can use about $5 to trade a micro lot which is affordable. So, as a beginner you should avoid bigger lot sizes.
Remember that for a big lot size such as a standard lot, you lose $10 for every negative pip movement while on a micro lot you lose just $0.1 on every negative pip movement.
How Do I Calculate My Lot Size?
You can use a lot size calculator to tell you what lot size to trade given your account balance.
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