3 Tips for Choosing a Lot Size in Forex Trading

While many experts recommend beginning to invest in your 20s, that’s not possible for everyone. However, with the forex market’s ability to yield insane growth and the globalist slant of most millennials, forex trading might be the perfect entry for new traders. If you’re thought about trading in forex, you need to first decide on lot size to understand how much you’ll be investing.

Here are the three most important lot sizes in forex trading.

1. Micro Lots

This is the smallest tradeable unit of lots that most brokers will make available. In a micro lot, you’re usually trading 1000 units of the funding currency that you’re investing in.

If you’re funding your account in U.S. dollars, then your micro lot would be $1,000 worth of the currency you want to trade. If you’re trading a pair that’s dollar-based, then you’re going to be dealing with “pips” which are equal to about 10 cents.

Micro lots are the ideal choice for anyone who is risk-averse, new at trading, or anything in between. It’s for the most casuals of traders.

2. Mini Lots

Mini lots used to be the smallest unit you could get from brokers. Now a mini log, which is about 10,000 units of currency, is in the middle.

Because this is ten times the size of your micro lot, a pip here is worth around $1, if we’re still using the U.S. dollar analogy. For beginners who want to start with mini lots, you should have some solid capital behind you before you begin.

While a $1 pip seems like next to nothing, you could see 100 or more pips moving in a single day. In the instance of something drastic, 100 pips could move within an hour.

If the market moves against you, you might suffer a $100 loss. If you have a high-risk tolerance or you don’t handle mistakes well, then you should be comfortable with mini lots. You don’t have to start with $10,000 but it’s recommended you start at around $2,000.

3. Standard Lots

These lots are a much more significant size than mini lots. They have 100k units in them. That means that you need to show up with $100,000 to start trading in dollars. In this case, your pips would be worth $10, which could add up pretty quickly.

For people who are afraid of losing, even if they have this money comfortably, they should avoid standard-sized lots. Standard lots give you a lot of choices for investing but it could be extremely intimidating for many traders.

If traders show up with $25,000, they can usually open their own standard lot.

Lot Size Shows Your Commitment and Your Risks

If you’re ready to start getting into the forex market, then it’s time to start thinking about your lot size. If you’ve never been much of a gambler or a stocks person, you might start off with the micro lot. However, if you get bit by the bug, you can use that initial investment to climb up to a standard lot.

Check out these trading tips to start your climb to the top ASAP.

This article was written by our in-house forex traders with a combined 20+ years of experience in trading the financial markets.