The Problem of Lot Sizes

Filed under: Learn Forex Trading |

I would posit that one of the main reasons that people new to trading forex fail is because of the system of trading in what is called ‘lots’.

 

A ‘lot’ is the standard unit to trade in forex, and it is 100,000 units of the base currency in a standard account, 10,000 units if it is a mini-account, or 1,000 units if it is a micro-account. Most new traders seem to measure everything in pips, which are the smallest incremental price movement of a currency. However, pips are actually irrelevant to your trading bank. What matters, is money! Therefore, you have to work out how many lots to trade in order to risk “X” amount of money.

 

Working out lot sizes is not easy, and if you have a fairly decent grasp of mathematics (which you really should if you hope to be a forex trader!), then you should probably develop your own system. There are websites that calculate lot sizes for you, but websites do occasionally close, so it is better to be self-reliant just in case. I personally have created my own excel spreadsheet. I put my price, stop loss, and target in there and it works out how many lots I need to trade in order to risk “X” amount of money. It actually wasn’t that difficult to make with an elementary grasp of the excel software. If anyone wants some help with this, leave a comment or two and I will write an article that will lead you through it step by step.

 

Once you have got a way to calculate your lots, you need to work out your entry price, your stop loss, and your target. You can do this by moving the cross hairs over the relevant candle on your MT4 platform, hold it there, and you will see the high, low, open, and close of that candle at the bottom of the chart. Or you can simply see the level of where your cross hairs are on the chart. By doing this, with a bit of math, you can work out all of your relevant levels.

 

And if you need any further help with this, as this article is quite generalized, then just fire away in the comments box!

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