It is a vast misconception you have to have lots of money to start investing or trading. The beauty of online trading lies in the opportunity to start investing with what you have, which can be Forex minimum trade size (we’ll dive into that). The size of the capital you trade with will ultimately decide your position on the forex market.
The amount of money you put into the stock market is the position size (the amount you trade). The larger the lot size (or the position), the higher chances are for you to win a trade, but also, you can’t risk losing money. Here, we will teach you about the correct size, pace yourself, and create a healthy money management plan.
How much are you ready to invest?
A common rule is that you shouldn’t risk more than one or maximum two percent of what is in your trading account, whenever you trade and no matter how tempting it can be. That is why it is useful to learn about lots and pips, and then trading capital can easily show you exactly how much money you can and should trade with.
What are the lot sizes in Forex?
There are three different types in Forex of lots:
- Standard lot
- Mini lot
- Micro lot
Each one requires a different amount of money to trade, which depends on your stop-loss (stop loss means setting an order for a certain percentage of how much you can trade with, without suffering consequences). Let’s see the difference between lots first, so we can see what one lot means and how to manage it.
What is a lot in Forex?
1.0 lot forex is a standard trading contract or standard lot. It amounts to 100,000 units of the base currency. This means that one standard lot values around $10 per pip. For example, if the market moves one pip that benefits, you will make 10 dollars. In accordance, if the trade moves against you, you automatically lose $10 per pip. If you decide to open a trade and the market moves against you by ten pips, this is equal to $100.
What do you need to trade a standard lot?
Simply put, you would need an account large enough to withstand a losing trade at $10 per pipe.
You probably already know that there aren’t many people who do not have the luxury of trading capital of $10,000. That is why brokers created an opportunity to offer a different position size for traders with less money to start with. When they divide a standard lot into ten pieces, this is what we call a mini lot.
A mini lot contains 10,000 units of currency. In this case, each trade will have a value of $1 per pip. Of course, the best part is that you can start with far less than $10.000.
People can be wary, but interested in trading, so brokers made an even smaller lot that divided mini lots by then. That’s how we get the micro lot. What does it mean? Each contract that you trade is 1,000 units of currency and will give each pip the value of $0.10.
What is the maximum size you want to trade with and how to decide?
Every trade has a different stop-loss, so you need to decide the position size for each deal you want to make. There is a formula (don’t get scared), which you can apply to tell you how much you can trade according to the size of your trading account and the stop loss:
Position Size in Lots equals Account Size X the % risk per trade divided with Stop Loss in Pips X Loss per Pip per Lot
Be careful when using the formula to ensure that the numerator and denominator’s currency are the same. Be sure to convert one into the other at the current market price if they aren’t.
Try practicing before actually getting into everything, so it can be just simple math instead of “what the hell.” You will catch up with it within fifteen minutes, for sure. In the end, these ARE the basics. If you have a friend, try learning about it together. You can also find more information on our website on various topics, including trading and going in-depth, once you think you made progress. Learning and following what’s happening in the world is essential for a trader.
Another helpful piece of advice:
Be proactive and stay on track. Learn about currencies and pairs on the stock market, take your time, and don’t stress about it. That is why brokers created three types of slots. So you can try small, and gradually progress as you become more confident. The key is to be a regular “student,” so you can become the teacher. Please pay attention to what you have and how you are handling it because trading is teaching you how the economy works and how to manage your current savings.