Deciding on a Lot for Your Forex Trading

Trading Strategy

As a Forex trader, your natural desire is to reduce risks as much as possible. Inevitably, you develop risk management strategies to combat the side-effects of risky trades. In doing so, Forex traders must pay close attention to the size of their lots. Forex strategists assert that the smaller the lot size is, the better, consequently boosting flexibility and overall risk management. So what are the types of Forex slots? Forex slots come in three forms: 1) Micro Lots, 2) Mini Lots and 3) Standard Lots.

Micro Lots: This is essentially the smallest available size capacity tradable by the regular broker. A micro lot comprises of 1000 units of your overall funding currency. Say, for example, your account default currency was the USD, you’ll be trading $1000 worth of your regular currency. If you are using a dollar pair, keep in mind that your one pip is equivalent to ten cents. This is the least riskiest and a perfect start for beginners.

Mini Lots: superseded micro lots and have continued to be of significant to Forex traders today. However, mini lots have become an expensive commodity, for each dollar on a dollar based pair trade demands 10,000 units of currency funding. This means that each pip is worth $1 in a trade. Therefore, you need to have enough capital. Consider the insane fluctuations of the market, you can either get $100 in an hour or lose $100 in 2 minutes because the Forex market is so unpredictable. You’ll have to decide how much risk you can handle before you make comfortable and uncomfortable decisions.

Standard Lots: In order to trade using a standard lot, you’ll have to have 100,000 dollars wortth of trades. This is because each pip size is on average $10, so that means that losing $100 has a common occurrence. These are often provided and maintained by institutions. You have to invest significantly to afford this kind of lot, about $25,000 to make your trades worth while.

At the end of the day, it’ll depend significantly on your risk management, your investment, and the overall organization of your trading. The best option remains within the micro lots, since mini and standard are accompanied by significant investment needs including lots of risks.

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