Minimum lot size forex factory

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Note that amount of leverage does not have any effect on the value of the lot size itself — a standard lot remains , units, while a micro lot is still 1, units — but it can affect the number of lots you can trade with the balance on your account. You can also look at it the other way round — the number of lots you trade with a particular account size determines the amount of leverage you are using since you must not use the maximum leverage provided by the broker. Hence, no matter how much leverage allowed by the broker, you can control how much you use.

Margin can be classified as required, used, or free margin. The Required Margin is the amount of money a trader needs to put down in order to open a specified lot size of a leveraged trade. It can be expressed as a percentage of the total amount the specified lot size is worth or in the actual amount of the margin requirement. When there are many open trades, the term Used Margin refers to the aggregate of all the Required Margin from all open positions.

Also known as usable margin or available margin, Free Margin is the amount available to open new trades or cushion the effects of negative price movements until the trade is stopped out or you get a margin call. Required Margin varies with both the leverage and the lot sizes. For a given leverage ratio, the Required Margin percentage is the same, but the actual value of the Required Margin varies with the different lot sizes.

The bigger the lot size, the bigger the margin required to trade it, as you can see in the table below. And from the table above, for a specified lot size, the higher the allowable leverage, the smaller the amount that can be used to carry 1 lot size. It is key to your trading success over the long term, and the amount of lot size you trade affects how you manage your trading capital and growth potential. If you trade larger lot sizes that are too big for your account, you run the risk of blowing your account in no time, as you can lose several consecutive trades no matter how good your trading strategy is.

On the other hand, if you trade a very small lot size, your account will remain stagnant. So, you need a good money management plan. A money management plan always starts with knowing the percentage of your account balance you will risk in a trade. With the dollar amount of this account risk percentage, you can calculate the right lot size to trade. Depending on your account size and dollar risk, it may be better to trade in multiples of mini or micro lots than trading the standard lot, as it makes it more flexible to manage your account growth.

That is, as your account grows, you increase your trading position size in multiples of mini or micro lots rather than adding a full standard lot. Some traders tend to trade bigger lot sizes and use smaller stop loss so as to maintain their preferred account risk amount. However, this is the wrong way to trade because it increases the chances of being stopped out before the trade has the chance to move in the anticipated direction.

It is much better to trade a smaller lot size and use a bigger stop loss. This way, you are giving enough room for the usual price gyrations before the price moves. Moreover, trading a smaller stop loss reduces your potential losses if the price gaps beyond your stop loss level.

What should determine the amount of your stop loss is the structure of the market and volatility, not the number of lot size you intend to trade. In fact, the right approach is to determine a safe place on the chart to place your stop loss, measure the number of pips it will take, and then, use that number to calculate the appropriate lot size for the amount you intend to risk in that trade. Your lot size affects your profit or loss By now, it is clear that lot size determines the dollar value of a pip, and price movements in favor or against your position are measured in pips.

Thus, the lot size you trade surely affects your profit or loss. If you trade big lot sizes, you will make huge profits if the trade is a winner, but if the trade is a loser, your losses are magnified too. On the flip side, if you trade too little a lot size, you will make small profits or losses in each trade. While this may be fine — at least, it helps preserve your account capital — it may take a lot of time to grow your trading capital. It is, therefore, necessary that you learn how to determine the right lot size for your account level.

How to choose the right lot size to trade To determine the appropriate lot size for your account balance, you need to know these three things: The amount to risk in each trade: First, you need to know the percentage of your account balance you are willing to risk per trade. So, you will risk this amount in the next trade. The size of your stop loss: Use the volatility in the market and the price structure on your chart to determine a safe place for your stop loss and measure the number of pips.

The value of a pip: Each currency pair has its pip value for the standard lot, mini lot, micro lot, and Nano lot. You can use the pip value for any of the lot sizes, but the unit of the lot size you calculate must be in the type you used for the pip value. Final words The lot size is a concept in forex trading used in measuring your position size and is defined as the number of currency units you are willing to buy or sell when you enter a trade.

This means that you will be risking more or less than is optimal for your account. Over time, this can have a detrimental effect on your account because you aren't risking a consistent amount per trade. So some winning trades won't make up for the losing trades. Start by calculating how much money you'll be risking per trade. Now go back to the pip value list in the previous section and how many pips that would be for the EURUSD, for each of the lot sizes.

If you're day trading and only going to be risking pips or less, then you could potentially get away with a micro lot account. But if you will be risking more than pips, then it's better to go with a nano lot account. You'll have to make your decisions on which lot size is right for you, but knowing the right lot size before your first trade will get you started on the right foot. First-In First-Out and Hedging There are a couple of other terms that you may hear, in relation to lot sizes and entering trades in Forex.

They can be a little confusing when you're first starting out, so I want to make you aware of them. This is the way that it should be. However, if you have a US based account, you'll have to exit your trades in the order that you entered them. So let's say that you enter 2 Japanese Yen trades as follows: Trade 1: Long 2 mini lots Trade 2: Long 1 mini lot If you have to follow the FIFO rules, then you would have to exit trade 1 before you exit trade 2.

Some US brokers will also blend your trades, so you'll only see an average of the 2 trades, not 2 separate trades. I'm not a fan of FIFO, but there are ways around it. You can read this post on how to do it. Hedging Hedging is when your broker allows you to hold both long and short positions in the same trading account.