When you first get your feet wet with forex training, you'll learn about trading lots. In the context of forex trading, a lot refers to a batch of currency the trader controls. The lot size is variable. Typical designations for lot size include standard lots, mini lots, and micro lots. It is important to note that the lot size directly impacts and indicates the amount of risk you're taking.
Lot Size Matters
Finding the lot size that best balances opportunity and risk is a very important individual decision. Using a tool like a risk-management calculator can help you clarify your decisions about lot size, but you should do so by factoring in your own risk tolerance and your trading objectives.
The trading lot size directly impacts how much a market move affects your accounts. For example, a 100-pip move on a small trade will not be felt nearly as much as the same 100-pip move on very large trade size.
That is why it is important to select the proper lot size. A lot size that is too large will make the trade riskier and more uncomfortable to hold on to. A lot size that is too small might not generate enough potential gain to be worthwhile.
Trading With Micro Lots
Micro lots are the smallest tradeable lot available to most brokers. They are lots of 1,000 units of your account funding currency. If your account is funded in U.S. dollars, this means that a micro lot is $1,000 worth of the base currency you want to trade. If you are trading a dollar-based pair, one pip would be equal to ten cents. Micro lots are very good for beginners who want to keep risk to a minimum while practicing their trading.
Moving up to Mini Lots
Before micro lots, there were mini lots. A mini lot is 10,000 units of your account funding currency. If you are using a dollar-based account and trading a dollar-based pair, each pip in your trade would be worth about $1.00. If you are a beginner and you want to start trading using mini lots, make sure that you're well-capitalized.
While $1.00 per pip seems like a small amount, in forex trading, the market can move 100 pips in a day, sometimes even in an hour. If the market is moving against you, that adds up to a $100 loss. It's up to you to decide your ultimate risk tolerance, but to trade a mini account, you should start with at least $2,000 to be comfortable.
Using Standard Lots
A standard lot is a 100,000-unit lot. That is a $100,000 trade if you are trading in dollars. Trading with this size of position means that the trader's account value will fluctuate by $10 for each one pip move. For a trader who has only $2,000 in their account (usually the minimum required to trade a standard lot), a 20-pip move can make a 10% change in account balance, so most retail traders with small accounts don't trade in standard lots.
Most forex traders you come across are going to be trading mini lots or micro lots. It might not feel glamorous, but keeping your lot size within reason relative to your account size will help you preserve your trading capital to continue trading for the long term.
A Helpful Visualization
In his book Trading In The Zone, trading author Mark Douglas offers a useful analogy between choosing a lot size and walking a precarious bridge or even a tightrope. The idea is that the larger the lot size a trader chooses, the more dramatic and emotional the trading experience is likely to become.
To illustrate this example, a very small trade size relative to your account capital would be like walking over a valley on a very wide, stable bridge where little would disturb you even if there were a storm or heavy rains. Now imagine that the larger the trade you place, the smaller and riskier the support or bridge under you becomes.
When you place an extremely large trade size relative to your account balance, the bridge gets as narrow as a tightrope wire. Any small movement in the market could be like a gust of wind, blowing the trader off balance and leading to disaster.
Frequently Asked Questions (FAQs)
How much money do you need to trade forex?
The forex market is less regulated than other markets, so requirements like minimum account size are typically set by brokerages. You may be able to trade forex with as little as $100, but it's better to save up more and give yourself wiggle room for losses.
How do you calculate forex profit?
The first step in calculating forex profit is to measure the movement of the pair. For instance, you may be trading a dollar-based pair that moves three pips in your favor, or $0.30. Multiply that profit by your lot size and number of lots. If you're trading two standard-size lots, then that would be two lots times 100,000 units per lot times $0.30 profit (2 x 100,000 x 0.3 = $60,000). If you used leverage, you'll need to subtract what you borrowed from that amount to learn how much profit you'll get to pocket.
FAQs
A standard lot size is 100,000 units of the base currency in a forex trade, mini-lots are 10,000 units and micro-lots are 1,000 units. When choosing the most suitable lot size for them, traders should consider the size of their account, risk tolerance and trading strategy, among other factors.
What is the best lot to use in forex? ›
Micro Lots; Micro lots accounts are the most common and are suitable for beginner forex traders. Here is why; a micro lot equals 1,000 units, which is precisely $0.10/pip movement. With this account, you can deposit anywhere from $100 to $500, which is an excellent amount to start with.
What is optimal lot size in forex? ›
Summary table: standard vs mini vs micro vs nano
| Lot Size | Units of Base Currency | Profit/Loss Potential |
|---|
| Standard Lot | 100,000 | High |
| Mini Lot | 10,000 | Medium |
| Micro Lot | 1,000 | Low |
| Nano Lot | 100 | Very low |
Aug 2, 2023
If you have a $1000 account, you may want to start with a micro lot (0.01) to minimize risk. If you have a $5000 account, you can trade with a mini lot (0.1) to increase potential profits. If you have a $50000 account, you can trade with a standard lot (1) to take advantage of larger price movements.
What lot size is good for a $15000 forex account? ›
Commodities/Indices Trading: A Starter account with a $7,000 balance sets your maximum lot size at 0.07 lots. With a $15,000 balance in a Standard account, you can go up to 0.15 lots. In a Professional account having a $30,000 balance, the maximum lot size is 0.30 lots.
How to know which lot size to use? ›
To determine the correct lot size, traders should consider their account size, risk tolerance, and the volatility of the instrument they're trading. They can also use online calculators to help them determine their lot size.
What is the best lot size to use? ›
Micro lots are ideal for beginners as they offer lower risk, more flexibility, and greater learning potential. Mini lots can also be a good option for those with a slightly larger trading account, but it is important to consider the increased risk.
What is the best lot size for beginners? ›
Micro and nano lots are used by beginners who want to experiment in forex markets without risking much capital. The larger the lot, the higher the profit or loss could be.
What is the best lot size for $100 in forex? ›
When you trade forex with $100, it's recommended to open trades of no more than 0.01-0.05 lots so that risks should not exceed 5% of the deposit amount. To trade forex with $100, you will need the maximum leverage to lower the margin amount blocked by the broker.
What lot size is good for $200 forex account? ›
However, a 0.10 lot size can be a good starting point for a $200 account, especially if you have had successful results in your demo trading using the same lot size. Firstly, it is important to understand what lot size means in Forex trading.
The optimal risk of $30 a trade will allow you to trade 0.1 lots with an SL of 300 points. The potential growth will be $90. Depending on the percentage of your account you want to assign for a trade, there may be different combinations and the size of stop-loss in points you need for your trade may differ.
What is the best lot size for $500? ›
It is better to trade with 0.05 lot if you have $500 account. If you are risking 50 pips per trade with 0.5 lot, you will lose all your capital if there are 10 consecutive losses. On other hand with 0.05 lot you can try for 100 times & you can save your capital.
How much is 0.01 lot size profit? ›
This lot size accounts for 1,000 base currency units in every forex trade, determining the amount of a particular currency. Suppose you're trading the USDJPY (U.S. Dollar-Japanese Yen) currency pair, and the base currency is the USD. In that case, a 0.01 lot is equivalent to 1,000 U.S. dollars.
Can I trade gold with $10? ›
While it's technically possible to trade gold with $10, it's not advisable. Such a small amount would severely limit your trading options and expose you to excessive risk.
What is the best lot size for $30? ›
You should allow at least 150 pips of movement which will eliminate plenty of trades being stopped out. Since you only risk 3% or $30; 150 pips should equal $30. Just divide $30 by 150 pips and you will get 0.20 lots. This means you should trade no more than 0.20 lots.
How many lots can I trade with $50? ›
You could trade one or two mini lots and keep your risk to between $50-100. You should not trade more than three mini lots in this example if you do not wish to violate your 2% rule.
What lot size is good for $100 forex? ›
When you trade forex with $100, it's recommended to open trades of no more than 0.01-0.05 lots so that risks should not exceed 5% of the deposit amount. To trade forex with $100, you will need the maximum leverage to lower the margin amount blocked by the broker.
What lot size is good for $200 forex? ›
However, a 0.10 lot size can be a good starting point for a $200 account, especially if you have had successful results in your demo trading using the same lot size. Firstly, it is important to understand what lot size means in Forex trading. Good practice.
Is 1/500 leverage good for a beginner? ›
Some may even offer leverage as high as 1:500. While this may seem enticing, it is not recommended for beginner traders. High leverage can lead to significant losses and should only be used by experienced traders who have a thorough understanding of the markets and proper risk management strategies.
