A Forex lot is a trading term used to describe the size of a trading position in Forex with reference to a standard of , units of the base currency. The benchmark for forex trades is , units of the base currency, and since this trade size is the standard against which other trade sizes are measured, this is referred to as one Standard Lot. The Standard Lot is therefore assigned a value of 1. Trade sizes can be a lot more or a lot less than a standard lot. This is why there are subdivisions of the Standard Lot as follows:.
This is equivalent to a position size of 10, units of the base currency of the account, with a minimum lot size of 0. Mini lot measurements therefore start from 0. This is equivalent to a position size of 1, units of the base currency of the account, with a lot size of 0. Micro lot measurements start from 0. However, these are not standardized and tend to differ from one broker to another.
Lots in forex are used to assign a measurement to the trade volume of a forex trade position. Considering that the value of a trade position as well as the movement of the currency pair in pips is what determines the level of profit or loss after a forex trade, what is the monetary value of the forex lot?
We will assume that the base currency is US Dollars. All other measurements of the value of a pip can be calculated using these formulae.
So a trade which uses 0. The value of the forex lot applied to a trade will have a bearing on the risk profile for the account. The risk to an account is a function of the account size, stop loss , currency traded, risk percentage applied and the Lot size. This is shown in this demonstration using a forex position size calculator. What lot size should be use to keep his account from being exposed to too much risk? We refer to a position size calculator to do the Maths for us:.
We can see clearly that the trader can only use a maximum of 15 micro lots 0. If the trader intends to take more than one trade, then the lot size must be divided by the number of trades to come up with a new lot size measurement which will stick to the limits of risk. We can see that the forex lot is an integral part of what traders must consider before putting on a trade. Traders must use lot sizes that conform to acceptable risk limits.
Lot sizes will therefore have to be considered when choosing a broker, when funding the account and definitely before putting on a trade position. Broker choice is important as some brokers may only permit certain trade sizes on their platform. Sufficient funds will also be needed to assume certain levels of forex position sizing. Mail will not be published required. Leave a Reply Click here to cancel reply. Practice Trading at eToro Now! Benefits of Trading with our BO Indicator:More...