Lot Size in Forex
Many amateur traders are unable to manage their risk properly especially when they select the wrong lot size for their Forex trades. One of the reasons why a new trader will lose a great percentage of the trading capital is because of the wrong choice of the lot size used for trades.
The standard size of a lot is 100,000 units of currency. We have mini lots, micro lots and nano lots and their units are 10,000 units, 1,000 units, and 100 units.
The “pip” movement in forex is the change in the value of one currency compared to the change in the value of another currency. The pip value for a standard lot (at 1 lot size) is $10, pip value for a mini lot (at 0.01 lot size) is $1, pip value for a micro lot (at 0.01 lot size) is $0.1, and the pip value for a nano lot (at 0.001 lot size) is $0.01.
The most suitable lot type for amateur traders is the nano lot type as it remains the smallest forex lot that brokers can offer. To make trades with Standard lots, a trader may start trading with about $25,000 in the trading account. For mini lots, $1,000, micro lots, $150 and nano lots, with as low as $25.
Selecting a Standard lot size for a mini account, or selecting a mini lot size for a micro account are one of the reasons why new traders lose their trading capital at the initial stage of trading. The account size determines the lot size to be adopted. Using higher lot size for a small trading account may result in heavy losses.