How to Choose Lot Size in Forex?

Telegram FX Signals – One of the most important elements of successful Forex trading is money management. Structuring a trading plan without sensible money management can seriously impact a trader’s profit and potentially lead to a significant loss. In this article, we’ll discuss all the aspects of lots and how to choose them.

What is a Forex lot size?

A lot in Forex trading is a unit of measure that standardizes the size of a trade. The change in the value of one currency compared to another is measured in points, which are the last decimal places and, therefore, very small. This means that trading in one unit is not viable, which is why parties exist to allow people to trade these small movements in large quantities.

How to Choose Lot Size in Forex

How to Choose Lot Size in Forex

The lot value is set by an exchange or similar market regulator, ensuring that everyone is trading a set amount and knows how much of an asset they are trading when they open a position.

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Finding the lot size that best balances opportunity and risk is a very important individual decision. Using a tool like the Trading Calculator can help you refine your lot size decisions, but you should do so with your own risk tolerance and trading goals in mind.

That’s why it’s important to choose the right lot size. A lot size which is too big will make the trade riskier and harder to hold. Lot sizes which are too small may not generate enough potential profit to be worthwhile.

Standard Lot Sizes in Forex Trading

Lots are categorized into four sizes – standard, mini, micro, and nano – to give traders more control over the amount of risk exposure. The size of the trading lot directly affects how much market movement affects your accounts. For example, a 100-point move on a small trade will not feel as strong as the same 100 points move on a very large trade. Most traders in the Forex market typically trade micro and mini lots.

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Nano is the smallest one. It has 100 points. However, this type of lot isn’t widespread, and FBS doesn’t have it as an option.

Micro lots are the lowest value lots that most brokers can trade. It contains 1000 units of the currency with which your account is replenished. Assuming your account is using US dollars as funding, a micro lot will be worth $1,000. Let’s say you are trading a dollar-based pair, which means 1 cent would be a point. Micro lots are recommended for beginners as you can minimize your risk while trading.

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In addition to the micro-lot, there are also mini-lots, which are 10,000 units of the currency that replenishes your account. This is essentially 10 times larger than the Micro Lot. Let’s say you’re trading a dollar-based pair using US dollars as your account currency, then each point is equal to 10 cents. If you’re a beginner who intends to trade with mini lots, make sure you have enough capital because although 10 cents per point may seem small, the Forex market can move by 1000 points per day or even per hour. This means that if the trade goes against you, you will have to take a $100 loss. Of course, you decide how much you want to risk, but for comfortable trading, you must have at least $2,000 in your account.

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Finally, a standard lot is a lot of 100,000 units. If you are using dollars, that means the trade is $100,000. Your account value will fluctuate by $1 for every point movement. Assuming you have $3,000 in your account, a 300-point move will cause a 10% change in your account balance. As a result, most traders with smaller accounts wouldn’t trade standard lots.

How to Choose Lot Size in Forex?

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How to Choose Lot Size in Forex?