What is lot size and how can it be used in trading? This is a question that many new traders ask, and for good reason. Lot size is an important concept to understand because it can have a big impact on your trading results. In this article, we’ll explain what lot size is and how you can use it to your advantage.
Checkout this video:
Introduction
Lot size is a very important concept in forex trading. A lot is the smallest unit of trade in a forex account. The standard lot size is 100,000 units of the base currency. But, there are also mini-lots of 10,000 and micro-lots of 1,000.
What is Lot Size?
Lot size is a term used in investment, particularly in the forex market. It is also called trade size and refers to the number of units of a particular asset that you buy or sell in a single trade.
For example, if you were to buy 1,000 units of a currency pair, your lot size would be 1,000 units. If you were to buy 10,000 units, your lot size would be 10,000 units. (See also: 3 Types of Forex Market Analysis)
When trading forex, you generally have three different options for lot sizes that you can trade:
-A standard lot is the equivalent of 100,000 units of the base currency in a forex trade. So, if you were trading euros against the U.S. dollar (EUR/USD), each pip value would be $10 with a standard lot.
-A mini lot is 10% of a standard lot or 10,000 units of the base currency in a forex trade. So, if we were still talking about EUR/USD here, each pip value would be $1 with a mini lot.
-A micro lot is 1% of a standard lot or 1,000 units of the base currency in a forex trade. So if we were still talking about EUR/USD above, each pip value would be $0.10 with amicrolot.
How to Use Lot Size in Trading
In the world of finance, a lot is the standard number of units of a financial instrument traded on an exchange. For stocks, a lot is typically 100 shares. For bonds, a lot is usually $1,000 worth of the bond. And for futures and forex contracts, a lot is usually the standard trading size for those markets.
There are also mini-lots and micro-lots. A mini-lot is 10,000 units of currency, and a micro-lot is 1,000 units. To take advantage of relatively small moves in the forex markets, many traders use mini-lots or micro-lots.
position size = risk * stop loss / (entry price – stop loss)
For example, if you have a $10,000 account and you’re willing to risk 1% per trade (or $100), you can buy or sell a position size of up to $10,000 / ($100) = 100 shares of stock. If you’re using a micro-lot, that would be 1,000 units of currency ($10,000 / ($0.10)).
Standard Lot Size
A standard lot is the equivalent to 100,000 units of the base currency in a forex trade. A standard lot is similar to trade size. It is one of the three commonly used lot sizes; the other two are mini-lot and micro-lot. Standard lots are not available in all markets. For example, most spot metals are traded in mini-lots (10,000) or micro-lots (1,000).
Standard lot sizes do exist however for stocks on exchanges, such as the New York Stock Exchange (NYSE) where 1 stock trade = 100 shares. In foreign exchange (FX), a standard lot usually refers to a transaction size of 100,000 units of the base currency. This is also referred to as a 1 lotsize or a full contract in FX Trading . So when a trader places a trade for 1 standard lot of GBP/USD , they are actually buying or selling 100,000 GBP.
Mini Lot Size
In forex trading, a mini lot is a lot size that is one-tenth the size of a standard lot. A mini lot is a common trade size used in a forex mini account and consists of 10,000 units of the base currency. For example, if the USD/JPY pair is traded in a mini account, one pip would be equal to $1 because 10,000 yen equals $100.
Micro Lot Size
A micro lot is a very small good-sized trade contract. In foreign exchange (FX), a micro lot usually refers to 1,000 units of the base currency in a spot forex trade. This is the equivalent of a 0.01 standard lot or 1,000 units of the base currency in forex trading.
Micro lots are one-tenth the size of a mini lot, or 1,000 units of currency. They allow traders more flexibility when trading FX than larger contracts like mini lots and standard lots.
While many brokers offer fractional pip pricing, some only offer micro lots. This can make it difficult for newer traders with smaller account sizes to trade FX effectively.
Conclusion
In conclusion, lot size is a important factor to consider when trading stocks or other securities. It is vital to use a proper lot size in order to manage risk and increase potential profits. By understanding how lot size works, traders can better manage their overall trading strategy and improve their results.
