RLinda

How to calculate a trading lot. Why is it worth knowing?

Education
FX:EURUSD   Euro / U.S. Dollar
Many traders, beginners and not only do not know how to calculate the lot and act in practice not selectively and illiterately

Let's examine what a lot is, how much it costs and how to calculate it:

  • We will calculate by the old quotation system (four decimal places).

The cost of lots in forex:
The size of each position opened by a trader is measured in lots

Standard 1.0 lot = $100,000

Mini lot 0.10 = $10,000

Micro lot 0.01 = $1,000

*This size is always a constant value, independent of currency rates.
*Leverage does not affect the calculation of the lot

High leverage will only allow more lots to be opened.

How to calculate the lot:

Calculating the lot by yourself will give the trader a conscious understanding of possible losses, which is necessary for evaluating the situation, strategy and risks. This requires to know the pip value in any lot size
Then, a trader won't care about the leverage size and won't need to know the number of currency units in a lot at all.

Let's look at calculation of lot size as an example:
Let's assume that the EURUSD chart shows a long entry price of 1.0251.

The trader needs to place a stop-loss, but he must know the amount of possible future losses on this trade, if a protective order triggers.
As we know from theory, a stop-loss order should be placed

Below the minimum/maximums;
A fixed value using indicators or Expert Advisors.


We measure the size from the current position to the lower tail of the candle, we get 25 points.
We add a small reserve of 7 points to prevent the downward breakout from accidentally catching the stop loss and obtain 32points.

This stop loss should be subtracted from the current price.
We multiply the quote by 10000 for convenience and obtain 10251 - 32 = 10219.
We divide it back by 10000 and get 1.0219 (this is the stop-loss quote) and set our stop-loss at 1.0219

For ease of risk calculation we should always take the lot size 0.1.

For a 0.1 lot one pip of price movement is approximately worth $1,
for a micro lot 0.01 the cost per pip would be 10 cents,
for a whole 1.0 lot it would be $10

Why is it easier to start with 0.1 lot?
It is very easy for a trader to calculate that 32 points of stop loss in our example would cost him $32 in losses. This is quite reasonable for a $1000 deposit.

It is easy to think how much his potential loss will be worth, for example at 0.07 lots:
32 points at 0.1 lot costs $32,
at 0.01 lot ten times less - $3.2. At lot 0.07: 3.2 x 7 = $22.4.

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