Lot size on different exchanges
Trading on the foreign exchange market requires taking into account a variety of nuances that determine the profitability and risk of trading operations.
Moreover, some “little details” can play a decisive role in a certain situation on the exchange and significantly change the possible financial result of trading.
The Forex lot size is precisely the significant point that should be taken into account when calculating the volumes of future transactions.
The main thing is to correctly determine the ratio of the value of this indicator and your own deposit, to identify the optimal indicator taking into account the risk and the desired profitability of operations.
Many traders don't even realize how important this parameter is in the initial stages of trading, trying to make a deal with the maximum volume.
In this article, I will try to explain the easiest way to calculate the optimal Forex lot size.
One lot on Forex is equal to 100,000 units of the base currency, which is the basis for calculating trading volumes. You can trade in whole lots or in fractional lots, which are typically 0.1, 0.2, or 0.5 of the standard lot.
If necessary, you can open a deal with a volume of 0.7, to do this, simply enter the desired value in the window where the lot size is indicated
It is also important to remember that the minimum volume is not always 100,000 units; this rule does not apply to trading cryptocurrencies, securities, futures, and some other assets.
For example, if you decide to trade Bitcoin in the trader's terminal, the size will already be only 1 Bitcoin, while the minimum trade that can be opened is 0.1.
Therefore, always check the specifications of the selected asset for lot sizes and the minimum volume with which a trade can be opened.
A stock lot size is defined as 100 shares when trading on the stock exchange. This means that the value of 1 lot of shares is equal to the value of 100 individual shares.
For example, at the moment, 1 Gazprom security costs 200 rubles, which means that when opening a standard-volume trade, we only need to pay 20,000 rubles.
The paradox is the huge difference in asset prices: the cheapest share can cost $1, while some can cost up to several thousand per share.
What about other exchanges?
Precious metals - silver 5000 ounces, gold 100 ounces, platinum 50 ounces.
Other futures - 1 lot of oil is equal to 1000 barrels, copper is 25,000 pounds, and natural gas is traded in units of 10,000,000 thermal units.
We determine what lot size is suitable for trading
The optimal trade size is the value that maintains your deposit's stability against minor trend fluctuations—rollbacks. It's important to keep in mind that the trading lot size varies depending on the asset you select.
Your order should not be closed at the first correction that occurs on your trading time frame.
The calculation uses a slightly non-standard method, which consists of several stages.
1. First, we analyze the typical correction rate for our timeframe, identifying inverse price movements. For example, our maximum retracement is 50 points.
2. Now we need to calculate the size of the trading lot relative to the available deposit. It should be such that even if we have to close the position by stop-loss, the losses will not exceed the permissible amount (1-2% from one transaction).
Here we need to take into account the ratio of the cost of one point to the available funds. If one point with a transaction volume of one lot is approximately equal to 10 dollars, then a correction of 20 points will cost our deposit at least 200 US dollars.
And if we assume that the maximum permissible loss is 5%, then the deposit size must be more than $4,000.
By reducing the forex lot size to 0.1, we can safely trade with a deposit of $400 without putting it at great risk.
Based on this principle, you can calculate the required trade volume based on lot sizes for virtually any account balance. However, it's important to remember that 5% is the maximum loss you can tolerate on a single trade. Therefore, it's advisable to maintain an even smaller percentage if possible.
It should not be forgotten that the main guideline when setting a stop loss is still the market situation, and money management plays more of a supporting role.
Another guideline for you can be the amount of funds under collateral; it should not exceed 10-15 percent of the amount of funds in your trader deposit.
Calculating a Forex lot size is a purely individual matter for each trader and depends on your strategy and the risk you are trading with. However, certain limits should be observed and trades of the maximum possible size should not be opened.
- Lot calculation script - http://time-forex.com/skripty/raschet-lotov-foreks
