What is a LOT in Forex Trading? - Lot Sizes Explained
Below is a brief discussion of each of these lot types:. The other currency the USD in our case is the quote currency i.
The price displayed is usually the quote currency. Although it is possible to trade with a smaller lot known as the nano lot which is simply units of the base currency, most Forex brokers allow micro lot trades and above.
What is Lot Size in Forex?
Micro lot trades allow new traders to participate in the market without having to start with a lot of capital. A micro lot will also reduce the overall exposure of a new trader allowing them to learn trading with little risk. As mentioned above, a standard lot is equivalent to , units of currency. You should trade with standard lots when you become a professional trader because standard lots are accompanied by large swings of losses and gains.
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- Fractional Pips!
In conclusion, a lot simply refers to the size of a trade. The standard lot is the biggest lot size while the nano lot is the smallest lot size. So you can see that although a pip represents minimum price change, what it means to an individual trader does vary.
What is a lot size and how to calculate a lot in Forex
Add this to the fact that by trading multiple lots you are actually better able to control your risk on a relative basis, things can really start to add up when you do take losses. This is where mini and micro lots come in.
And this kind of lot size makes it easy to get started in trading Forex. This is where leverage comes in. Leverage is the ability to trade based on a marginal amount of the capital required to trade. But when you trade on margin, you might be able to get leverage for example.
- 4 Types of Lots Defined;
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Not that leverage is all good news. Trading on margin allows a trader to lose more than the value of their margin account, so a non-risk savvy trader can easily get themselves into hot water.