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3. Micro Lot Size of.01 [1 Pip = $0.10]
The minimum order quantity for a micro lot is 1,000. If you choose a lot size of 0.01, you will receive 1000 of the base currency upon opening a position.
Therefore, 1% of a lot is equal to 1 micro lot. For this reason, it is represented as 0.01. If you want to buy $1,000 at the current USD/TRY exchange rate, for instance, you would need to open a 1 micro lot buy position.
In addition, if you use x100 leverage, you can open a trade for 1 micro lot with just $10.
To illustrate, let’s say you want to buy British pounds against Japanese yen and you choose a micro lot size of 0.01, or one thousand British pounds.
What would 10 pips be worth if you traded a micro lot? The value of that is $1.
The profit from trading 10 pips on 5 micro lots is $0.5.
Ten basis points (pips) are equivalent to one dollar (USD), one Turkish lira (TRY), or one British pound (GBP).
In a nutshell, you earned 10 pips, with each pip being worth 10 cents. If we assign a value of 10 cents to each pip, we get a total of $1.
With a micro lot size of one, each pip is worth or costs you $0.10.
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4. Nano Lots Size (0.001) [1 Pip = $0.01]
It is a trading unit that is not offered by all forex companies because it corresponds to extremely small amounts of money.
If you’re just starting out in live Forex trading and don’t have a lot of money to risk, being able to trade with nano lot sizes can be incredibly helpful.
To purchase 100 Swiss francs at the current CHF/TRY exchange rate, a long position of 1 nano lot is required.
Nano lots are traded in increments of 100 of the base currency. A lot size of 0.001 signifies 100 of the base currency will be purchased when a position is opened.
In this case, a buy order on the GBP/JPY currency pair would be opened with a nano lot. That’s the same as purchasing one hundred British pounds.
Additionally, on a nano lot size, each pip is worth or costs you a single cent.
Why Does Lot Size Matter?
Without a reliable risk management strategy, forex trading success is impossible.
A trader must be aware of both the potential dangers of each trade and the maximum amount of risk he can afford to take given the size of his account.
Over-leveraging your account by trading larger lots with a smaller account can cause it to vanish in an instant if you’re not careful.
Therefore, in order to manage risk properly, a trader must understand how to use lot size appropriately.
How to calculate lot size
Your trade’s lot size should reflect your risk management strategy, the opportunity’s potential downside, and other considerations.
A forex trader, for instance, would be wise to risk no more than 3% of their account on any given trade.
You can increase this ratio from 3% to 7% if you, like me, thrive on the adrenaline rush associated with taking risks. But it can’t be more than 7%.
So, let’s pretend you have a $1000 bank balance. You have received a credit with a potential loss of 30 pips.
Therefore, the maximum allowable lot size is 0.10 based on the above data.
Calculation:
$30 (3% of $1,000)
30 pips @0.10 = $30
You can safely risk 3% of your trading capital with a mini lot, so a lot size of 0.10 is fine for this trade.
In Commodities, How Much Does 1 Lot Cost?
Gold, silver, oil, and natural gas are examples of commodities. What is the price for 1 lot of these items? One lot is equal to one hundred ounces of gold, or XAU.
In addition, 31.10 grams is equal to 1 ounce. One lot of silver is equal to five thousand troy ounces. One lot of oil is equal to a hundred barrels.
One lot of natural gas is equal to one hundred thousand cubic meters.
You have just eliminated any chance of accidentally opening a large transaction because you now have all the information you need about the LOT.
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