Forex pairs are traded in lots. Having good money management is aside a strategy one needs to understand in order to know the right lots to use on every trade. Whether you’re making a practice trade or trading live, as it helps you understand the amount you would like to risk.
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 a very large trade size.
The standard size for a lot is 100,000 units of currency, and also there are mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively.
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Forex Lots size in a simple form is a measurement of currency units and a way of determining how many currency units are required for a trade. It is much likely for beginner traders to have smaller budgets which is why nano and micro-lots are usually the most popular.
Standard Lot – 100,000 Currency Units
The standard forex lot is what you will see most commonly when trading with the standard account types of many forex brokers. The standard lot is 100,000 currency units, so typically has a value of $100,000 if we take trading in US Dollars as an example. 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 that has only $2,000 in their account (usually the minimum required to trade a standard lot) it means 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.
The majority of experienced forex traders are accustomed to trading at this level and it is worth noting that due to leverage in forex, you do not need to have a full $100,000 in your account to trade a standard lot. When most refer to a lot in forex trading, this is also the typical value they are referring to.
Mini Lot – 10,000 Currency Units
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.
A mini lot is a great choice for those who may want to trade with a lower, or perhaps no leverage at all. This type of lot is again very common with most top forex brokers offering these types of lots that contain 10,000 currency units which would have a typical value of $10,000 if trading USD.
Micro Lot – 1,000 Currency Units
A micro lot in forex is the next smaller step on the trading ladder again. Micro lot is a lot of 1,000 units of your account funding currency which means that this value in the case of our USD trading example would be just $1000. While micro lots and forex micro trading accounts are available with some brokers, they are not always accessible. They do however provide another ideal platform for new forex traders to get a good,value for money taste of the industry. This level can provide an excellent stepping stone for those who may have already tried out a nano account or wanting to move straight from demo account trading without committing 100%.
If you are trading a dollar-based pair, 1 pip would be equal to 10 cents. Micro lots are very good for beginners that want to keep risk to a minimum while practicing their trading.
Nano Lot – 100 Currency Units
The nano lots is the smallest trading lot size available. This trading lot is comprised of 100 currency units which have a total value of $100 in the case of our USD trading example. The nano lot is again more rare to see, but is certainly still available with many top forex trading brokers. This is a very ideal starting lot size for those who wish to try out forex trading for the first time. It offers real money trading beyond a demo trading account, but with a much smaller level of risk involved.
Anifowose Ope is a professional trader and founder of Forex Optimal, I have been trading the forex market for many years and whatever the challenges new traders are facing I have been there.
I started my trading journey back in 2014 where I begin trading using various indicators that leads to losses in the market. After searching for alternatives, I found price action trading to be the best approach to the forex market My success in the financial market has given me a greater degree of independence than others.
With the knowledge I have acquired in the forex market I want to assist other traders to be able to profit from the market