How to determine the volume of a Forex transaction?
When trading on the foreign exchange market, you should choose the right volume of a Forex transaction; the stability of your position against sharp fluctuations in the trend and the comfort of trading itself will depend on this step.
It would seem that such a simple step at first glance raises a lot of questions, and it is the answers to them that this article will enlighten. Some novice traders think that they should always trade in the maximum possible volume and make a fatal mistake.
Forex transaction volume - the amount for which an order is opened, taking into account the leverage used, is entered when opening each new order.
The main thing when choosing the transaction volume is to correctly take into account such important points as the size of the deposit, the time period of trading, trading strategy and trend dynamics.
Only after analyzing these indicators will you determine the optimal lot size, which will allow you to conduct quiet trading with minimal risk.
1. Deposit size – if the amount of funds in your account is quite large, this can significantly reduce risks by reducing the volume of transactions. For example, when trading a deposit of $10,000, there is no point in opening a position of more than 1 lot, while you can already make good money and withstand a correction of 20-30 points, or close the position with small losses.
It’s another matter if you have only $100 available, but still want to earn money, in this case you should choose a trade with a volume of 0.1 lot, trading becomes more risky, but 1 point of profit will bring you 1 dollar.
2. Time period - there is a clear pattern in which most traders trading on short time periods choose the maximum available volume of a Forex transaction.
After all, in one or two minutes the price is unlikely to change by more than a couple of points, so the risk of losing all your money is minimized. Therefore, the shorter the time frame, the greater the volume of transactions performed and the size of the leverage used. This approach allows you to get maximum profit from your available funds; it is this type of trading that allows you to increase your deposit several times in one trading session.
3. Dynamics of price movement - usually, when looking at the chart of a currency pair, you can see how the price moves over a certain time period, how many points constitute the main movement towards the trend, and what is the magnitude of the correction, the main role is played by the magnitude of the correction. You must not close until the next pullback or, on the contrary, maintain the position without allowing a large drawdown of the deposit.
It is this indicator that is taken as the basis for calculations, for example, the correction value is 15 points, and the account has 100 US dollars, which means you can open a deal with a volume of 0.1 lot.
4. Maximum amount of losses - usually this indicator is taken into account only by traders who have at least several thousand dollars in their account. Since, according to generally accepted rules, the loss from one transaction should not exceed more than 2-3 percent.
Let's take again the amount of 100 units, and the volume of the Forex transaction is 0.1 lot, it turns out that we should bury ourselves as soon as the losses reach 3 dollars, in practice this rarely happens. This means that you should reduce your trading volumes several times and trade an order of magnitude smaller volumes.
As you can see, there are many approaches to determining the optimal trading volume on the Forex currency exchange; your task is to apply them correctly based on your situation, taking into account all the above parameters.