Lot size in Forex Trading
Before placing a order in currency pairs as well as commodities in forex market you must understand lot size and you must know how is you will determine that what each PIP you earn is worth, when you placed a order it means you traded little currency blocks these little blocks are called “Lots”. It is a certain size of currency traded, certain dollar amount. Now I will briefly discuss in this article so Let’s start….
Three Basic Lot Size
As we know that there are two basic account type in Forex, One is Mini and another is Standard account if we have mini account so what will be volume in these three basic lot size and keep in mind that I am just educating you only currencies not others like commodities,stock, bound and indices
- Micro Lot = $1000 worth of currency controlled and volume 0.10 lot and it will be equal to $0.10 per pip
- Mini Lot = $10,000 worth of currency controlled and volume 1 lot and it will be equal to $1 per pip
- Standard Lot = $100,000 worth of currency controlled and volume 10 lot and it will be equal to $10 per pip
like that in below for GBP/USD……….
- How much Lot are worth in the GBP/USD.
- 1 Micro lot = $0.10 per PIP.
- 1 Mini lot = $1 per PIP.
- Standard lot = $10 per PIP.
What is Margin
- How much you need to “Put up”.
- Margin is like a Security Deposit.
- Margin is multiplied with leverage to get lot lot Size.
- Margin is actual money that is in your account.
- Your broker will take the margin and segregate it during the trade , you will get it back if you loss or win.
What is Leverage
- Because market moves in such small amounts, we need to magnify the trade sizes.
- Leverage is the trade size “multiplier”.
- Your broker “lend” you additional capital, although no money changes hands.
- Brokers can offer wide range of leverage , anywhere from 1:1 to 2000:1
Formulas of Leverage, Lot Size and Margin
- To find Margin = Contract / Leverage.
- To find Contract = Margin X Leverage.
- To find Leverage = Contract / Margin.
- Margin Level = Equity / Margin * 100
- Leverage = 1:500 M=$10,000 / 500 =$20
- Lot Size = $ 10,000 LS=$20 X 500 = $10,000
- Margin = ???? L = $10,000 / $20 = 500