Standard Lot Sizes of Forex Trading
What is The Lot Size?
In forex trading, all currency pairs are traded in lots, understanding lots is very important before trading forex because a single wrong trade, units wise might create a big difference in your account. How much units we want to trade is the necessary field for the execution of our trade. Forex provides us the best flexibility of choosing the desired units for trading.
A fixed number of units are called a “Lot Size”
and also a “Contract Size”
. Selecting the proper lot size (contract size) is a very important aspect of money management. There are 3 main standardized lot sizes in forex trading. They are as following
• Standard lot = 100,000 units
• Mini lot = 10,000 units
• Micro lot = 1,000 units
At the time of applying a live forex trading account, we have to select the account as per our trading volume. We can trade as many units we want to trade, but they should be in multiples in the above mentioned lot sizes, for example; if we have a forex trading account with mini lot facility then we can trade in multiples of 10,000, but not odd sizes like 12,000 or 28,000, etc. If we want to trade in such odd sizes then, we should apply for a forex trading account with the micro lot facility. Further there are a few forex brokers who also provide the facility to trade any desired units i.e. we can even trade odd sizes like 3,456 units of a particular currency.
We should trade in proper lot size as per our pre-defined risk management rules, though leverage is offered on a very high scale in forex trading, it is still advisable that we should trade with those funds which we can afford to lose because using leverage for trading on high volumes with low capital is a “double edged sword” which can profit multi folds, but simultaneously can also diminish our whole trading capital within a couple of minutes.
Suggested trading lots as per initial capital are
• If the initial capital is between $100 to $500 then trading micro lots, is the preferred choice.
• If the initial capital is between $500 to $5,000 then trading mini lots, is the best choice.
• If the initial capital is above $5,000 then trading standard lots, is ideal.
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