Choosing a lot size to work with will make a big impact on your risk management strategy. You might find yourself asking Ã¢ÂÂwhich lot size will work best for me?Ã¢ÂÂ. The answer really depends on your trading style but a basic rule of thumb is the smaller the better. The smaller your lot size, the more flexible you can be when it comes managing your trades.
Using Micro Lots
Micro lots are the smallest tradable lot available with most brokers. A micro lot is a lot of 1000 units of your accounting funding currency. If your account is funded in US dollars a micro lot is $1000 worth of the base currency you want to trade. If you are trading a dollar based pair, 1 pip would be equal to 10 cents. Micro lots are very good for beginners that need to be more at ease while trading.
Using Mini Lots
Before micro lots, there were mini lots. A mini lot is 10,000 units of your account funding currency. If you are trading a dollar based account and trading a dollar based pair, each pip in a trade would be worth about $1. If you are a beginner and you want to start trading using mini lots, be well capitalized. $1 per pip seems like a small amount but in forex trading, the market can move 100 pips in a day, sometimes even in an hour. If the market is moving against you, that is a $100 loss. ItÃ¢ÂÂs up to you to decide your ultimate risk tolerance, but to trade a mini account, you should start with at least $2000 to be comfortable.
Using Standard Lots
A standard lot is a 100k unit lot. That is a $100,000 trade if you are trading in dollars. The average pip size for standard lots is $10 per pip. This is better remembered as a $100 loss when you are only down 10 pips. Standard lots are for institutional sized accounts. That means you should have $25,000 or more to make trades with standard lots.
Most forex traders that you come across are going to be trading mini lots or micro lots. It might not be glamorous, but keep you lot size within reason for your account size will help you to survive long term.