How Does Mini Lot Trading Minimizes Risk? A mini lot is a lot of 10,000 units of a country’s base currency. 10th of the size of a 100,000 unit standard lot. For instance, forex mini lot you’re trading on an account using U.
Because of this, even experienced traders like to use mini lots to finely tune their exposure to a market. With the increase of algorithmic trading, trade size is rarely done in full blocks because the risk exposure from 500,000 to 600,000 is rather large when you can easily move from 500,000 to 510,000. A common misconception many traders have is that they can get appropriate feedback on their trading strategy and how well they’ll be able to manage risk live by using a practice account. While entries and exits and risk management can be refined through a virtual money practice account, traders typically don’t understand how they will react to big moves in the market until real money is on the line.
To the rescue is mini lots, which help traders get comfortable with how the equity in their account fluctuates based on market moves. Traders know that the larger the trade size, the larger the account equity swings on an absolute basis. An example of incrementally adapting to a situation is the need to use the shallow end of a swimming pool before jumping into the deep end when learning how to swim. Another reason to use mini lots is to limit risk and to test the market. Limiting risk is done through tighter trade sizes based on quantitative models. You do not have to have a quantitative model to trade the foreign exchange market, but they are common.
Testing the market is something that mini lot traders like to do because it allows them to “load into a trade. For example, instead of a trader opening their fully planned trade size at once, they’ll break up their trade into chunks of three. How Can I Open a Forex Account and How Much Money Do I Need? What Is the Difference Between Forex Trading and Commodity Trading? How Much Do Currency Traders Make? What Is an Interest Rate Differential?
A lot is the smallest trade size you can place when trading the forex market. A lot references the smallest available trade size that you can place when trading the Forex market. Typically, brokers will refer to lots by increments of 1000 or a micro lot. It is important to note that lot size directly impacts the risk you are taking.
Therefore, finding the best lot size with a tool like a risk management calculator or something with a desired output can help you determine the desired lot size based on the size of your current accounts, whether practice or live, as well as help you understand the amount you would like to risk. Lot size directly impacts how much a market move affects your accounts so that 100 pip move on a small trade will not be felt nearly as much as the same hundred pip move on a very large trade size. Here is a definition of different lot sizes you will come across in your trading career as well as a helpful analogy borrowed from one of the most respected books in the trading business. A micro lot is a lot of 1000 units of your accounting funding currency. 1000 worth of the base currency you want to trade.
A mini lot is 10,000 units of your account funding currency. 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. Using Standard LotsA standard lot is a 100k unit lot. 100,000 trade if you are trading in dollars.
100 loss when you are only down 10 pips. Standard lots are for institutional-sized accounts. 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 your lot size within reason for your account size will help you to survive long term. In short, he recommends likening the lot size that you trade and how a market move would affect you to the amount of support you have under you while walking over a valley when something unexpected happens.
Expanding on this example, a very small trade size relative to your accounts would be like walking over a valley on a very wide and stable bridge where little would disturb you even if there was a storm or heavy rains. Now imagine that the larger the trade you place the smaller the support or road under you becomes. Is There a Way to Completely Eliminate Losing Trades? Do You Want to Learn Forex Trading? Our network of expert financial advisors field questions from our community. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the 100 most influential advisors and their contributions to critical conversations on finance.