Forex trading attracts more and more traders every day. However, starting to deal with forex can be quite difficult due to the abundance of special terminology.
Forex trading attracts more and more traders every day. However, starting to deal with forex can be quite difficult due to the abundance of special terminology. Before discovering forex trade strategies, it is essential to understand such basic things as lot size in forex, what it is, how to calculate it, and so on. As soon as you get acquainted with the most common terms and start navigating in lot sizes for forex, you will be able to move to trading strategies and start earning profits.
What Is a Trading Lot and Its Sizes
The currency traded in forex usually comes in large amounts. This is why there are special lots that make it much easier to conduct transactions. One lot contains 100 thousand units of your chosen currency. This means that one lot of American dollars contains 100,000 USD. However, this is a big amount, and not all transactions can include it. You can manage your size of lots by using the terms for smaller amounts:
- Mini lot – 10 thousand currency units
- Micro lot – 1 thousand currency units
- Nano lot – 1 hundred currency units
If you were wondering what is lot size forex, now, you know that all these terms are created to make the trading process easier. This also facilitates communication between forex brokers and allows decreasing the number of errors in transactions. It also depends on each separate broker whether to use a variety of lot sizes or just use the regular amount of currency.
The next essential term that comes along with the lots is “pip.” This one measures the slightest change in the value of currency trade. The worth of 1 pip is based on the pair of currencies that you are trading. If we take such a pair as EUR/USD, its pip size is 0,0001. For example, if you are trading at 1,1526, but then, the value changes to 1,1528, this means that it increased by two pips.
Calculating a Lot in Forex Trade
It is crucial to decide on the forex lot size that you are willing to trade to have stability in case of price fluctuations. This is what you need to consider when trading:
- The max risk you can take for one position.
- The stop loss counted in pips.
- The size of your deposit.
It is important for starting forex brokers to not round up the numbers when calculating the lot sizes. Also, make sure to examine your strategies on historical data.