Lot Size Calculation
What is lot in Forex trading?
In the usual sense, a lot is a standard unit used to measure the volume of a currency position opened by a trader. This is the amount of money invested in buying a currency in order to later resell it at a higher price. The calculation of lots is part of the risk management system. Knowing the lot size is important to build a balanced trading system.
Types of lots Size.
Mini lot size
A mini lot corresponds to 10% of a standard lot. When you open a 1 lot trade on a mini lot forex account, you buy or sell 10,000 units of base currency instead of 100,000 as you would with a standard lot. The mini lot is handy as it takes less money to enter a transaction and therefore requires a smaller deposit.
Micro lot size
I will demonstrate a forex micro lot using an example. The trade value is the EURUSD pair; the exchange rate is 1.1826. A standard lot consists of 100,000 base currencies. If you want to trade any lot, you need to spend $ 118,260 to buy $ 100,000. If you're a retailer, you probably don't have that much capital left. The minimum lot size for Forex under trading conditions is 0.01. But even then, you have to invest $ 1,182.60. The risk management rules indicate an acceptable risk per transaction of 2% of the deposit amount. This means that for a minimum trade of 0.01 lot, you need 1,182.60 * 50 = $ 59,130. A micro lot corresponds to 1% of a standard lot. If you enter a EURUSD transaction of 1 lot, you buy 1000 euros for 1182.60 US dollars. A trade of 0.01 means you buy $ 10 for $ 11.83.
Nano lot size
A Nano weld seam corresponds to 0.1% of a standard weld seam. Nano-batch counts are called penny counts. Much here corresponds to an exchange of 100 units of the base currency. If we go back to the example from the previous section, a 1-lot trade means buying / selling EUR 100 for USD 118.26. The smallest possible transaction with a volume of 0.01 lot means the purchase of 1 euro for 1.1826 US dollars Regular accounts do not allow transactions for such small volumes. Penny accounts have a downside, however. Not only is the transaction volume, i.e. the investment, 1000 times lower, but your potential profit is also 1000 times lower. Professional traders who want to get their time back and make real profits don't use penny accounts.
How to calculate the size of a lot in forex
For every asset you enter into a transaction, it will always be executed in the currency of the account. Most of the time it's the USD. It is therefore crucial for traders to understand how much money they are actually putting aside in USD when opening a position, for example for a cross rate. A cross rate is a currency pair that does not contain the US dollar (for example when exchanging the Swiss franc for the yen)Read More...
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