In this article we will see what a lot in forex is and how a lot size in forex can be classified. For instance there are different lot sizes in forex, each of them with a different value.
When trading, each chosen lot size in forex involves a different amount of money.
A lot size can go from a microlot which is equal to 0.01 lot, to a standard lot (1 lot).
Let’s understand now what a lot is.
What is a lot in forex?
A lot represents a Forex transaction unit of measure. Thanks to this it’s possible to know how much money a trader needs to use for a single trade.
The smallest lot size in forex is called microlot and it’s worth 0,01 lot. There is then the minilot which is 0,1 and it is the medium lot size. However, there is no limit to the highest amount – even if some brokers allow to trade a maximum of 20 lots for every single position.
A standard lot size forex (1 lot) represents 100.000 units, but this doesn’t mean that a trader should have $ 100.000 in their account.
Let’s understand better with an example.
Example of lot size in Forex
In forex trading, a very important factor in the leverage.
In fact, if the chosen leverage is 1:200, it’s just necessary to have $500 to open a position of 1 lot.
The concept can sound a bit complicated we know! To simplify when trading just remember what the starting leverage is.
Once you have the starting leverage, you just need to divide 1 lot (so 100.000) for the leverage (200 in this case), and the result represents the amount of money you’re going to invest for that position if you decide to open 1 lot. So this would be $500 in our example.
If $500 is too much for a single investment, it’s possible to select a lower amount of lots, for example 0,1 lot and invest just $50.
How to set up the lot size on Metatrader 4
When trading on the MT4 or Metatrader 4, setting up the lot size is essential.
To trade, it’s necessary to press the F9 button and the trading window will open.
In there, in the volume window (as you can see in the picture), it’s possible to set up the desired lot size.
Finally, to complete the trade, you just need to enter the stop loss and take profit values and decide to sell or buy.
How to set up the lot size in a forex platform
Every broker gives the opportunity to all its clients to trade with different lot sizes.
The minimum lot size which can be selected is the microlot, so 0.01 lots. To set up the lot size, a trader needs to open the trading window on the used forex platform.
Some brokers give also the opportunity to trade deciding directly the amount of money to invest in every position.
This might be a big help for beginners who have some difficulties understanding the amount of money invested on lots.
An other big help trading platforms give, is the margin call.
What is the Margin Call
The margin in forex represents a minimum quantity of money which must be in the trading account before a trade can be opened.
Every broker has a different margin requirement, usually between the 1% and 2%. This means that to open a position with 1 lot (100.000 units) a trader needs to have into the account at least $1000.
Because the 1% of 100.000 units are 1.000 units which represent $1000.
An alternative for the trader can be to open a position with a microlot (0.01) which is exactly 1.000 units.
Finally a margin call will happen in the case the trader does not have enough money in the forex account to trade.
In this case will be the broker sending a message or an email asking for a new deposit or stopping the trade automatically.