How to Calculate Lot Size in Forex
When you open to yourself the unique world of trading, you need to solve several important issues. For instance, it is a key point to select a broker according to your goals and requirements. Then, you have to decide what exactly you would like to trade. Moreover, different strategies await your choice, as well as the question about the funds that can be spent on this process. Another important issue is the forex lot size, which you also must get acquainted with.
The determination of lot size in forex occurs based on your depositing ability, the chosen strategy, and your attitude toward risks. However, when you understand perfectly well how to calculate lot size in forex, you get a flawless chance to reduce risks, expand the total number of profitable transactions, and get rid of the prospects of losing your funds in case of huge movements in pricing.
Therefore, all novice users wonder how to calculate lot size forex and do it properly. What are the secrets of earning without losing and taking inevitable risks? If you would also like to investigate more about lot sizes forex, this article will serve as a helping hand and provide you with the answers to the most pressing issues.
What is Lot Size in Forex?
As a client of a brokerage platform, you will get access to a wide variety of lots. When the amount of funds for the transaction is determined, the key role will be played by the deposit size, chosen strategy, and attitude toward risks. Therefore, sums differ from standard to nano lots and are based on the abilities and desire to purchase or sell on a particular trade.
To find out what is a lot size in forex, we need to delve into some detail and discuss their existing variety.
Standard lot size Forex
To begin with, there is a standard option equal to 100,000 units of the main currency in the pair. Thus, if we consider the EUR/USD pair, the euro here serves as a base, and therefore, the standard size is equivalent to 100,000 euros.
Let us consider the following example for a better understanding of lot sizes in forex:
- Imagine you are going to work with the USD/EUR option.
- If you select a standard for it, the purchase or sale occurs for an asset worth $100,000.
- Therefore, all the price fluctuations will have a significant impact on your balance.
- For instance, in a USD-based pair, a pip would be approximately equal to $10. Thus, a 20-pip move will be a $200 profit or loss for you.
Such lot size in forex trading combined with small deposits will lead to the quick growth of your budget or its complete drain as big volatility is observed here. As the risks are high, only experienced and qualified professionals for whom this is the main work can be recommended lot size forex that belongs to this group.
A mini lot as another opportunity
The next possible forex trading lot size is mini. It is ten times less than the previous one. Consider an example:
- For the USD/EUR option, it is $10,000.
- Such size provides less impact on your budget in case of any unexpected changes.
- A pip is equal to $1 approximately.
Thus, if we talk about forex risk management lot size, this option gives less profit but is generally favorable and safer. The risk of large drops with negative consequences of the transaction becomes less pronounced.
Nevertheless, even for this option, one must have enough funds in case of some unsuccessful transactions. Market fluctuations must be taken into account in risk calculator forex to solve all probable problems.
Micro and nano lot options for those who do not like to risk
And this was not the end while answering the question of what is lot size in forex. So, there are even smaller options. Micro lots correspond to one-tenth of their mini counterpart. Therefore, it will be equal to 1,000 units of the pair base, and one pip will correspond to only $0.10 while trading.
In addition, there is a nano lot, which means 100 units of the base currency or one-tenth of a micro-lot size. A one-pip move for a USD-based pair is only one cent.
According to the opinion of experienced people, beginners should start from these two options even if they are aware of what is lot size forex and the nuances of their possible types. It is a good way to reduce risks to a sensible level.
The one probable inconvenience is the fact that not all brokers work with these options. Thus, you will need some time to find suitable options. So, manage your views on time and risks, and then make a decision based on all the available information.
Max lot size forex
Furthermore, you need to know not only the type of lot that is used, but you will also always see the minimum and the maximum lot size forex. The latter you can easily find in the specification in, for instance, MT4.
Let us consider the USD/EUR pair to illustrate this concept:
- First of all, find out the size of the contract and decide to which category from the above-mentioned it belongs.
- The maximum will be shown in a separate line.
- In the next step, you have to multiply these two numbers, and the resulting number will show you the highest lot here.
Min lot size forex
The minimum trade is also designated in the same table. If for the above-mentioned example, it will be ten or another number of times less, the minimum purchase will be calculated accordingly by multiplying the numbers.
These calculations are not very difficult, but it still takes time to get used to them and start doing them without thinking or hesitation. Do practice a little bit before proceeding to the next steps and evaluations of the positions.
How to determine lot size in Forex?
After we have learned what are lot sizes in forex, we need to solve the next issue, namely, which one of them to choose. This challenging decision depends on your aims, the desirable income, and your attitude toward forex risk. Thus, professional experienced traders generally prefer standard options as they are fully aware of what is at stake and how to deal with some difficulties.
For beginners and those who appreciate trading as a hobby, a mini-account seems to be the first choice. Still, it is recommended to follow the basic rules of money management and not make transactions that exceed 10% of your deposit.
Before answering the question of what is the highest lot size in forex trading, a beginner should start with micro lots or cent accounts. This allows trading with real money, learning, and gaining experience, while risks stay limited. The nano account is also suitable for novice traders who would like to know how to measure lot size. However, they can easily get bored with such minimal transactions and lose interest in trading at all.
No matter what forex position size you select, it is always advisable to follow several basic tips.
Before you proceed with any forex lot size calculator, it is better to consider acceptable risks. This value is individual and must be set according to your goals, preferences, and financial situation. Thus, for someone, a risk of 1% is acceptable, while others allow 3% or 5%. Select one system for evaluation of risks among the existing options and follow it constantly.
While you calculate lot size forex, the risk indicator shows the part of your deposit that you will lose in case of an unsuccessful operation. The basic recommendation is to operate with 1-5% of your deposit. Thus, even when you encounter a series of losses, you will still have the opportunity to win your money back and get a profit. Otherwise, no matter what lot size trading you select, the chances to recover tend to diminish.
If you do not want to utilize the forex lot calculator, there is a possibility to do the same calculations by yourself. The following steps are required:
- First of all, you have to determine your individual parameters. For instance, let it be a $1,000 deposit size with 1% acceptable risk and the stop level at 50 points.
- Risk evaluation will be the following: $1,000/100*1. And it is $10.
- To restrict the losses to $10 per trade, 50 pips must match that amount.
- From here, the cost of 1 point is calculated: $10/50=$0.2.
- If a market price of 1 pip is equal to 10 cents (0.1$), the lot value appears to be 0.2*0.1$, or 0.02.
Such lot size calculator forex reveals that it is advisable to utilize micro-lots. Following this general scheme, you can type your own numbers and percentages and calculate the results.
Forex lot size calculator
Keep in mind that there is still the most convenient and preferable way to calculate all these, and we are talking about the lot size forex calculator. This option has become widespread and very popular, so every broker has it, as well as many other Internet resources.
Such forex calculator lot size does calculations similar to those mentioned above. However, the entire process is automatized. It means you will get an appropriate result very quickly, without losing your precious time and thinking over the calculations repeatedly.
On different websites, you can utilize a handy calculator and find out all the information to make a profitable trade. This simple tool will save your time and nerves and will be more than helpful, especially for novice users.
Altogether, it should be noted that before you consider any type of making a profit, it is better to properly understand all the nuances of the way that you are interested in. This helps avoid mistakes and save your funds, not to mention expanding their amount.
If you wish to learn the Forex navigation and lot size meaning faster, it is advisable to start with a demo version. Here, you will use virtual funds instead of their real counterpart, which helps you to understand and eliminate errors before you launch your real account and start to use your own money.
After all, if you lose too much, this will decrease your motivation and your ability to continue trading. And at first, you’ll need time to cope with all the nuances and special features. Therefore, learn step by step and move toward your success steadily. Utilize such modern tools as online calculators and make your trading both profitable and enjoyable. In this case, you will be able to start earning and diminish the possible losses as much as possible.