Welcome to Finex’s special article on trading terms that will make your life easier.
This time we are going to talk about “lots”.
Chances are that you have heard of this term, especially for those of you who have been trading for a period of time.
Check out the following special discussion to really know all about lots, and for those of you who have never read about lots,
you’re in luck because this read is for you.
What is meant by multiple trades in forex?
A lot in the financial market is a unit of the number of units of a financial instrument to be traded. The number of units is determined by the lot size. For example, in the stock market, one lot consists of 100 shares. Investors or traders who buy and sell stocks do so in lots.
Or in Forex trading, one standard lot equals 100,000 currency units. For example, if the EUR/USD exchange rate is $1,1000, one standard lot of the base currency (EUR) is 110,000 units.
A one pip movement in a standard lot means a $10 change. Let’s say you buy $100,000 against the Japanese yen at 120.00 and the exchange rate moves to 120.50, which is a 50 pip movement. Congratulations, you made $500. On the other hand, if the exchange rate drops 50 pips to 119.50, you lose $500.
Forex itself offers three lot sizes for you to use. Apart from the standard lot, there is the mini lot and the micro lot. As the title suggests, the size of these two lots is smaller than the standard lot which aims to open up opportunities for traders who want to trade but don’t have the funds for the standard lot.
A mini lot equals 10,000 units and a micro lot = 1,000 units.
In other words, a mini lot is 0.1 standard lot and a micro lot is 0.01 standard lot.
Calculate the lot Trading
You already know the standard Forex lot size, which is 100,000 units of the base currency. So if the EUR/USD rate is 1.1000, you need 110,000 units of the base currency to open a 1 lot position. This means you need to provide 110,000 US dollars to buy 100,000 euros.
The value of 1 standard lot equal to 100,000 currency units applies only to currency trading (Forex). As mentioned at the beginning of the article, other assets have different meanings. For example, in stock trading, lot means the number of shares. The number of shares in a lot depends on the stock involved. Oil is measured in barrels, and gold in troy ounces.
For the record, the base currency is the currency that is bought or sold for another currency. It is always placed first in the quote.
If you feel that standard lots are not for you due to limited funds, you should be wary of leverage. Read from leverage that can lift your trading power higher than your actual capabilities.
Okay, now we get into how to calculate a lot.
Setiap aset yang Anda beli atau jual akan dihargai dalam mata uang yang berlaku di platform Anda – USD menjadi yang paling populer. Oleh karena itu, Anda perlu memahami berapa banyak dana yang akan Anda setorkan ke akun Anda (dalam USD) saat Anda membuka posisi, terutama jika Anda memperdagangkan mata uang yang tidak termasuk dolar AS (seperti GBP/CHF).
The easiest way to find out the lot size in Forex is by using a trading calculator.
You need to calculate the lot size for the following reasons:
So that you can optimize the volume of your trading position (in terms of the amount of funds, your risk, and your expected profit).
So that you can choose the right lot size for your capabilities.
Also, while you can improve your leverage skills, you still need to be cautious and able to apply risk management as a prudent trader and adult.
You should also pay attention to the type of direct pair and indirect pair to calculate the seed value. Finex provides an article for you to calculate pips.
Determining lot size and knowing lot risk
Of course you are wondering, how big is the right lot for me? I can’t determine risk management, so what?
Don’t worry, Finex has you covered. Here’s what you can think about:
The level of risk you are willing to take. The losses you’re willing to incur in order to achieve your profit goals. You may have heard the classic expression, the greater the risk, the greater the potential return. On the other hand, the potential loss also increases. Everyone has different abilities. What kind of trader are you, conservative or aggressive?
How to determine the appropriate transaction volume according to risk management? Risk management is based on mathematical calculations. While the transaction volume is calculated based on the average and current volatility, the deposit amount and the level of leverage used.
The amount of withdrawal you want to make, and at what level you place your stop loss.
So the parameters you need to know to determine the lot size or build your trading model are: transaction volume and lot type, margin, leverage, pip value, volatility, spread rate, risk per transaction, total risk for all transactions associated with your deposit/fund, deposit amount and profit target.
Always consider the various parameters to determine the lot size and calculate the lot based on the risk level.
Conclusion
You have new knowledge. You already know everything about destiny. It is time to decide which trades you will make.