For a Forex trader, lot size is an essential element. Lot size shows how many units a trader will trade in the Forex market. How much a trader will earn or loss, it depends on the lot size. Before someone enters into the market, they need to identify what lot size should they go for.
Different lot sizes affect differently. 100 pips can raise profits $100 in one lot size and $1000 in another lot size.
There are three types of lot size in trading:
- Micro lot size
- Mini lot size and
- Standard lot size
Micro lot size:
Micro lots are popular among forex traders, especially for those who are new in the market. This lot is equal to 1,000 units. A micro lot account for 1% of a standard lot. In a micro lot, 1 pip is equal to 10 cents. It’s the smallest tradable lot size used by most traders.
Mini lot size:
Before micro lots, beginners used mini lot size. Micro and mini, both are used to reduce risk.
The mini lot size is equal to 10,000 units. In a mini lot size, 1 pip is equal to $1.
Although 10 cents or $1 seem nothing, its impact is huge as the market can move 100 pips. If you’re using mini lots, 100 pips=$100. If the market moves against you,then you might face $100 in a day or even an hour. But the reward is huge too if the market is supportive of your trade. That’s why it’s important to have a minimum of $2000 while using mini lots.
Standard lot size:
Standard lots are the highest lot size in the market. It consists of 100,000 units. In the standard lots, 1 pip is equal to $10. This means if you have a supportive market, you can have $100 profits with on having 10 pips. But if the market is against you, you’d face the same amount of loss with only 10 pips. You must have $25000 if you want to trade with standard lot size.
Standard lots are not quite common among the traders as the risk is huge in this scenario. Mini and micro are not as attractive as standard but they surely reduce more risk than standard lots.
Earning profits in the Forex market can be crucial if you don’t choose your lot size wisely. Avoiding risk is as important as earning profits. It’s important to understand which lot size in forex matches your capital and how much can you bear the loss.