What are lots in forex?
In the forex market, a “Lot” refers to the trade size, indicating the number of currency units bought or sold. A Standard Lot represents 100,000 units of the base currency.
Many brokers also allow trading with fractional lot sizes, which can be as small as 0.01 or even lower.
The sizes of these fractional lots are classified into three categories:
- Mini lots (0.10)
- Micro lots (0.01)
- Nano lots (0.001)
You can refer to the image above to compare the different lot sizes and their corresponding currency units.
How To Use Lot Size and Risk Calculator
Follow these steps:
Instrument: Choose the trading instrument you want to use from the major foreign exchange pairs, minors and exotics, including cryptocurrencies.
Such as BTC/USD and ETH/USD as well as LTC/USD and XLM/USD. As well as a wide range of commodities like Gold or Silver, Oil. Let’s use the USD/CAD pair for our example.
Deposit currency: Your account’s base currency is essential for assessing the ideal lot size. As it considers the pip value and the market rate of the selected currency pair. In this example, we’ll choose USD as the deposit currency.
Stop-loss (pips): Input the maximum number of pips you are willing to risk in a trade. For this demonstration, let’s set our stop-loss at 100 pips.
Account balance: Enter your account equity in this field. For our example, let’s assume it’s $2000.
Risk: This is a crucial field in the Position Size and Risk Calculator. You can select a risk percentage or enter a specific value in your account’s base currency (e.g., $2, $20, $40, etc.).
Generally, Professional traders should not risk more than 2% in their accounts equity for each trade. Following this money management rule helps traders sustain their trading careers and recover from previous losses. For our example, we’ll choose a 2% risk.
Once you’ve provided the necessary inputs, click the”Calculate” button.
The results: The Position Size and Risk Calculator utilizes a live market price feed that includes the current interbank rate (displayed in a 5-digit format). It will show the price of the selected currency pair (in our example, the USD/CAD price).
Based on a stop-loss of 100 pips and a risk of 2% of our account equity, the recommended lot size would be 0.05 lots.
The calculator also displays the number of units the 0.05 lot represents (5,000 units) and the portion of the account equity at risk, which is the position’s value. In our case, it’s $40.
You may also find our Drawdown Calculator helpful. It precisely calculates how much your trading account’s equity could be affected by the loss of several trades.