Forex Strategies

One of the most important elements of successful Forex trading is money management. Structuring a trading plan without sensible money management can seriously affect a trader's earnings and potentially lead to significant loss. In this article, we will discuss all aspects of lots and how to choose them.

What is Lot Size in Forex?

A lot in Forex trading is the unit of measurement that standardizes the size of a trade. The change in value of one currency relative to another is measured in points, which are to the last decimal places and therefore very small. This means that operating in a unit is not viable, which is why there are parts that allow people to operate these small movements in large numbers.
The value of a lot is set by an exchange or similar market regulator, ensuring that everyone is trading a fixed amount and knows how much of an asset they are trading when they open a position.
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.
This is why it is important to choose the correct lot size. Too large a lot size will make the trade riskier and more difficult to maintain. Lot sizes that are too small might 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 greater control over the amount of risk exposure. The size of the lot to be traded directly affects the amount of market movement that affects your accounts. For example, a 100 point move on a small trade will not feel as strong as the same 100 point move on a very large trade. Most of the traders in the Forex market usually trade with micro and mini lots.

Nano is the smallest lot size. He has 100 points. However, this type of batch is not very widespread and FBS does not have it as an option.
Micro lots are the lowest value lots that most brokers can trade. Contains 1,000 units of your account currency. Assuming your account is in US dollars, a micro lot will be worth $1,000. Suppose you are trading a pair based on the dollar, which means that 1 cent would be a point. Micro lots are recommended for beginners as you can minimize your risk while trading.
In addition to the micro lot, there are also mini lots , which are 10,000 units of your account currency. This is essentially 10 times larger than the micro lot. Suppose you are trading a USD-based pair using US dollars as your account currency, then each point equals 10 cents. If you are a beginner who intends to trade mini lots, make sure you have enough capital because although 10 cents per point may seem small, the Forex market can move 1,000 points a day or even an hour. This means that if the trade goes against you, you will have to take a loss of $100. Of course, you decide how much you want to risk, but to trade comfortably, you must have at least $2,000 in your account.
Finally, a standard lot is a lot of 100,000 units. If you're using dollars, that means the trade is $100,000. The value of your account will fluctuate by $1 for each movement of points. Assuming you have $3,000 in your account, a movement of 300 points will cause a 10% change in your account balance. As a result, most traders with smaller accounts would not trade standard lots.

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In MetaTrader, lot size is also called volume. When opening an order you can set its size.
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Forex Lot Size Calculators

Now let's talk about the FBS tool that will save you time by calculating these things for you – the Trader's Calculator. Let's see how it works.
There are several fields that you must complete: account type and currency. Select the trading instrument and lot size. Bid and Ask prices are taken from the charts, but you can edit them if you consider trading at levels other than current prices. Margin is the amount of money you need in your account to fund a trade. If the quantity is too large or too small, you can try other batch sizes.
Information about the point value will help you assess the potential profit and risk on the trade you are planning: simply multiply this parameter by the Take Profit and Stop Loss levels. The spread is the difference between the bid and ask price and is also presented in points and in USD or EUR.
Note that the calculator also provides you with Long Swap and Short Swap readings. The swap is a percentage fee that you are paid or charged at the end of each trading day if you leave your trade open overnight. The procedure for transferring open positions from one trading day to another is called rollover. If traders extend their positions for more than one day, they will bear costs or profits, depending on prevailing interest rates.
If you only day trade with no rollovers, swaps shouldn't worry you at all. Even if you keep a trade open for several days (up to 2 weeks) and trade one of the major Forex pairs, your profit/loss swap is likely to be small compared to the result of your trade (profit or loss). . As a result, many traders do not pay attention to swaps.

Trading & Lot Size

Let us illustrate everything we have discussed with an example.

Let's imagine a trader, called Festus. Festus has just deposited $5,000 into his trading account and is ready to start trading. Let's say that he is now using a swing trading system that trades the EUUSD pair and that he is risking approximately 200 points on each trade.
Prior to this, Festus once lost money and then swore he didn't want to risk more than 1% of his account per trade. Let's calculate how large your position size needs to be to stay within your comfortable risk zone.
Using your account balance and the percentage you want to risk, we can calculate the dollar amount of risk.
$5.000 x 1% (o 0,01) = $50.
The ideal position size can be calculated using the formula:
Traded lots = amount at risk / (points at risk * point value)
In this case, in 10,000 units (or a mini lot), each point movement is worth $0.1.
Lots traded = $50 / (200*$0.1) = 2.5

Therefore, Festus needs to open a trade of 2.5 mini lots or less to stay within his comfort level with his current trading setup. Remember that 1 mini lot equals 0.1 standard lot. As a result, when Festus opens a new order in MetaTrader, he should write '0.25' as 'Volume'. Otherwise, you will be taking too much risk.

Note: The US dollar is the currency quoted in many pairs (EUUSD, GBP/USD, etc.). This means that the exchange rate of the quoted currency against the US dollar is equal to 1.

For such pairs, one point will always be worth $1 when trading:

A contract of 100,000 units (1 standard lot): 100,000 * 0.00001 / 1 = $1 (point value for EUUSD)
For pairs where the US dollar is the base currency (USD/CHF, USD/CAD), the point value will depend on the exchange rate:
100,000 * 0.00001 / 1.0195 = $0.98 (point value for USD/CHF)
For pairs with the Japanese yen, the point value is calculated as follows:
100,000 * 0.001 / 120.65 = $0.828 (point value for USD/JPY).

Remember that you do not actually need to have a large margin to trade 100,000 units, because you will most likely be trading with leverage .

Conclusion

Understanding lots and their sizes is a crucial element of effective Forex trading. Here is a reminder of what Forex lots are and why they are important:

Lots in Forex are units of measurement. They determine how many units of currency you buy.
There are four types of lots that you can buy on Forex: standard, mini, micro, and nano.
Your position size is determined by your lot size and the number of lots you buy or sell.
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