The first thing every forex trader considers before opening positions in the market is his lot size. Thus, lot size could be seen as the volume of the positions the trader takes at the market based on his capital. The leverage advantage offered by brokers has made it possible for traders to take larger positions in the market beyond their capital. This has both its advantages and disadvantages for the traders position too. This work has therefore discussed in detail the meaning of lot size and the value of each lot size chosen for trading with the online Forex Brokers for Beginners today.
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What is Forex?
Forex has become a popular word in the streets today. The fact that a lot of people have had the course to exchange their foreign currencies into an indigenous currency has made it easy for them to relate whenever we mention the word forex. Forex as we know it is a term that covers all forms of ‘Foreign Exchange.’ The word forex had been obtained by combining these two words to form one word as we have it today.
Meaning of lot size in Forex
The lot size is the volume of the position one takes in the market. It is like the size of the position taken which determines one’s returns with each move. For instance, one who uses the standard lot size which is 1.0 to take a position in the market, will expect to get $10 as his returns for each 1 pip movement in the market. The value changes as the lot size increases or decreases. We have also discussed the value of each lot size chosen in the next paragraph below.
Types of lot size
There are four types of lot size used for trading today known as: standard, mini, micro, and nano lot size. Out of these four, the first three listed are the most common. Only a few broker provide the fourth one known as Nano lot size.
- Standard Lot size (1.0): The standard lot size is the ideal lot size designed for trading before the lower forms were created as a fraction of it. A standard lot size in forex means the trader is to have 100,000 currency units in his account for trading. Each pip movement using the standard lot size amounts to $10 depending on the currency used for trading.
- Mini lot size (0.1): A mini lot size is one-tenth of a standard lot size. The mini lot size amounts to 10,000 currency units. Using a mini lot size gives a return of $1 for each 1 pip movement.
- Micro lot size (0.01): A micro lot size is one-tenth of a mini lot size. The micro lot size amounts to 1000 units of currency. Using a micro lot size gives a return of $0.1 for each pip movement.
- Nano lot size (0.001): The nano lot size is one-tenth of a micro lot size. Using a Nano amounts to having 100 units of currency. The return for using a Nano lot size is $0.01 per pip movement depending on the currency used.
Lot size and leverage: What you need to know
Leverage is like extra units of currency offered to traders by brokers which enables them to take larger positions in the market above the units of currency in their accounts. In fact, without this leverage, it would be impossible for anyone whose total currency units are below the value of a standard lot size to take positions in the market. However, the value of the leverage multiplies one’s currency units to take larger positions in the market.
