Forex Live: Lot Sizes
Description: This article looks at the different lot sizes you can use when trading forex.
When you trade forex live, you should consider the lot sizes you can use. Lot sizes play a big role in your risk management strategies. The general rule of thumb is that you should use a smaller lot size – but this may not be the best for you. Finding out what lot sizes there are will help you in finding the best size for your forex live trading style.
Micro Lots and Forex Live Trading
As the name may suggest, micro lots are the smallest lot sizes offered by forex brokers. A micro lot has 1000 units of your funding currency. This means that if you have US dollars in your account, then a micro lot consists of $1,000. Micro lots are the ideal lot size for any new trader. The small size ensures that you will not lose all of your money on a trade, and it reduces the risk involved in trading. When trading with micro lots a single pip will be equivalent to 0.1 units of your account currency.
Before the advent of the micro lot, the standard for all new traders was the mini lot. Mini lots are actually 10 times larger than the micro lot. Each lot will have 10000 units of the account base currency. This means that each pip with these lots is worth 1 account currency unit. As you are able to trade in micro lots, mini lots are no longer the ideal for new traders. If you are a new trader wanting to use mini lots, you should have a fair amount of capital. If you are going to use mini lots, it is recommended that you have a starting capital amount of 2000 currency units.
The risk associated with this lot size is greater than with micro lots. The reason for this is that the market can move around 100 pips each day. This means that on a trade you could be playing with 100 units of your account currency. This sort of loss can be a deal breaker for any new trader who does not have a lot of capital.
The Standard Lot
Standard lots are the largest lot available for trade on the forex market. You should only trade with these lots once you have a lot of experience and have a large account balance. The standard lot is 10 times bigger than the mini lot, which means each lot is 100,000 units of currency. A single pip with this lot is equal to 10 units of currency. This means that you can lose 100 units of currency when the market moves 10 pips.
The capital amount you should have to use this lot size is around 25000 units of currency. If you do not have this amount you will have to use large amounts of leverage, which increases the risk of your trades. The risk with this lot size is the greatest, as each pip is worth a fair amount of money.
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