|What is Forex Trading Lot|
|Fx Articles - Forex Basics Articles|
Risk is there in the forex trading but this risk can be managed if the trader takes care of certain things. One of the best ways to manage the risk is to select the correct forex trading lot size. The lot size can be of different types such as the Micro Lot, Mini Lot, and Standard Lot. It is an important question for the traders that which lot size should they select. The answer of this question depends on the trading style of the forex traders.
The experts’ advice the foreign exchange traders to select the smaller forex trading lot size for their trading business. The smaller lot size is advised by experts because the smaller is always the better. It will be easy to open and close trades for the traders if the lot size will be smaller. On the other hand, closing a trade with the bigger lot size will be more risky as compared to closing the trade with the smaller lot size. To take better decision on the selection of the correct lot size, it is important to know and understand the different types of the forex trading lot sizes available in the foreign exchange market.
Micro lots are the first and smallest of different types of lot sizes. A Micro Forex lot has only 1000 units of the base currency. If your base currency is the US dollars then the value of the micro lot is $1000. If your base currency is US dollars then the value of 1 pip will be equal to 10 cents. Trading in micro lot size is most suitable for the beginner currency traders. The probability of loss is least for the traders placing the trade orders in the micro lot sizes. Trading in the micro lot size is also good for those traders who want to invest less in the fx market.
Micro lots have not existed since the beginning of the foreign exchange market. Before the micro lots were introduced to favor the small level traders, the mini lots have existed. A Mini Forex lot is of 10,000 units. In simple words, a mini lot is 10 times the size of the micro lot. It means that the 10,000 units of base currency exist in the mini lot. The value of 1 pip in the mini lot is about $1. $1 may sound a small amount to the beginners but in reality this small amount can result in big loss or profit.
The foreign exchange market can move 100 pips positive or negative every day. So if the market moves 100 pips in your favor then the profit is $100 but if the market moves 100 pips against you then you will suffer the loss of $100. Sometimes the 100 pips of market movement can take place in an hour. The decision of the investment depends upon the foreign exchange traders. Although $1000 is the minimum amount to start forex trading using the mini lot but $2000 - $2500 is a good amount to start trading in the mini lots.
The size of the standard lot is 100K unit. $10,000 is the minimum amount that you should have in your forex account if you want to trade using the standard lot. The average pip size is $10 when you are trading using the standard lots. The big trading institutions prefer to trade using the standard lots. These trading institutions should have $25,000 or more in their forex account to facilitate trading using the standard lot. The concept of standard lot is not meant for the small traders. The small traders should trade using the mini lots or micro Forex lots.