How to Use Lot Determine Trading Style

Money management is one of the most important components in trading. Not having money management can even be said to be a trader's biggest sin. Without management of trading funds, no matter how good the strategy will not guarantee big profits and cannot minimize risk.

Lot in the financial market is a unit of the number of units of financial instruments to be traded. The number of units is determined by the lot size consisting of 100 shares. Forex itself provides three lot sizes for traders to use. Apart from standard lots, there are mini lots and micro lots. As the title suggests, the size of these two lots is smaller than the standard lot which aims to open up opportunities for traders who want to trade but do not have the funds for a standard lot.

Managing forex lot sizes is one of the easiest ways to maintain the maximum possible loss a trader can accept when opening a position. However, often novice traders wonder what a lot is in forex trading. Lots in financial markets are the number of units of financial instruments to be traded.

The smaller the lot in forex will mean that there will be less profit for the trader to earn for every percentage price movement, but more importantly, it will also reduce the potential for losses that can wipe out the trader's entire capital, confidence, and end a trader's trading career. For a number of reasons, also based on the history of forex trading, currency pairs are usually traded in a standard lot size unit worth 100,000 units of the base currency (1 forex lot equals 100,000 units of base currency). To make forex trading more affordable for individual traders, online retail forex brokers provide a mini account with a contract size of 10,000 (1 mini lot forex), and a micro account with a lot size of only 1,000 units (1 micro lot forex). With this new model of innovation, the lot size in forex is smaller, which means that it will also reduce the risk for each transaction made, as well as giving traders other advantages compared to standard lots.

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