Are you a beginner in the forex market? Do you know about forex trading lots? If the answer is “NO”, then it is high time for you to gather sufficient information on forex trading lot. A lot refers to the smallest trade size that a trader can place when he/she starts trading in the forex market. Mostly, the brokers refer lot size in terms of micro lot. A trader should always keep in mind that it is the lot size that determines how much risk he is taking for a trade.
Therefore, it is important that a trader should choose a lot size wisely as it is associated with risk management. But how can you select a lot size? The answer is simple – by measuring the level of risk or the amount of your desired output, you can easily determine a forex lot size.
Things you must do for choosing forex trading lots
Determine your level of risk
Before you choose a particular lot size for trading, you need to determine your level of risk in terms of percentage. Generally, it is suggested that a trader should start with a small amount because if the market closes out for a reason, the trader will not incur much loss. To define this fact in simple terms, let’s give an example here, suppose your trading account balance is $10,000, and you cannot take up risk losing more than $100. This equation is quite explanatory. Once you determine the level of risk, you can certainly move on choosing a forex trading lot.
Find your exit time
With open trading position, a stop helps to determine whether a trader wishes to exit the market when the market moves against him. There are innumerable ways available with which stop loss can be placed. Most of the traders use key lines for controlling a trading position such as pivots, price actions, and methods of finding value. No matter whatever method you choose to control your trading position, you must count the number of pips right from opening up a trading position to stop order. Keep this value in mind while choosing a lot size.
Uses of lot forex trading
Micro lot is the smallest amount of lot used by brokers. It reduces the level of risk up to some extent. The amount of a micro lot starts with 1000 units. If you open up a trading account in US dollars, a micro lot will be worth of $1000, and thus, 1 pip value will be equal to 10 cents. Micro lots are considered very useful especially for beginners who don’t have much information about forex trading.
After micro lots, a mini lot is also one of the forex trading lots which refer to 10,000 units for one single trading account.
A standard lot refers to 100 units or $100,000 trade if you wish to trade in dollars. The pip value of a standard lot is $10 for 1 pip. Standard lots are mostly used established trading accounts.
Making a profit in the forex market does not only depend on strategic planning but also rests on determining forex trading lots.
Hope you find this article an informative one. Wishing all new beginners a happy trading.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.