Novice traders are supposed to make so many vital choices: from techniques and charting tools to assets and brokers. But there is a fundamental decision which many newbies fail to pay sufficient attention to ― lot size. Thus, we insist you learn more about their types and how they differ in terms of profits and risks.
For a start, let us explain to you what lot size is. In simple terms, it is the amount of money you are supposed to trade per deal.
All in all, there are 4 sizes:
- standard ― 100,000 currency units;
- mini ― 10,000 currency units;
- micro ― 1,000 currency units;
- nano ― 100 currency units.
Let us explain this system to you by giving a precise example. So, if you plan to speculate on the USD/CAD pair, the standard lot will equal $100,000 as the US dollar will be the base currency. As for a pip, it will reach $10. Consequently, a 20-pip fluctuation will either bring you a profit of $200 or cost you an identical loss.
As you can see, utilizing standard lots allows gaining a large profit from a single deal and actually making a living from Forex trading solely, but you must bear in mind that the risks are increased as well. Hence, such lots are used by advanced traders mostly.
So, what is an optimal Forex Lot Size for you?
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The answer will depend on your experience and risk tolerance mainly although at a start you may be limited by your budget as well. Naturally, if you are a beginner, the best option for you is to trade minimal sums. Yet, if you utilize nano lots, the sums of potential losses may seem too small and insignificant to you. As a result, you will not pay enough attention to risk management, which will deprive you of crucial skills. That is why we advise you to opt for a micro account. Sure, it will not provide you with a fortune overnight, but it will give you a sense of profits and risks without devastating losses. On the other hand, when you obtain sufficient experience in risk management and decide to make trading your major job, you will probably switch to a standard account.
In sum, when you are just taking your first steps in trading, it is better to stick to micro lots as that will protect you from excessive losses. But as your skills improve, you can gradually increase your stakes.