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What is a lot in Forex and how to calculate trading volume?
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Trading FAQs. Market News. A standard lot is a ,unit lot. So most retail traders with small accounts don't trade in standard lots. Most forex traders that you come across are going to be trading mini lots or micro-lots. It might not feel glamorous, but keeping your lot size within reason relative to your account size will help you preserve your trading capital to continue trading for the long term.
If you have had the pleasure of reading Mark Douglas' Trading In The Zone , you may remember the analogy he provides to traders he has coached, which he shares in the book. In short, Douglas recommends likening the lot size that you trade and how market moves would affect you, to the amount of support you have under you while walking over a valley when something unexpected happens.
To illustrate this example, a very small trade size relative to your account capital would be like walking over a valley on a very wide, 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 and riskier the support or bridge under you becomes. When you place an extremely large trade size relative to your account balance, the bridge gets as narrow as a tightrope wire, such that any small movement in the market would be like a gust of wind in the example, and could send a trader the point of no return.
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What Is Micro Lot in Forex Trading?
Measure content performance. Bonus offers are correct as listed on the Mega Trader FX website and may differ from those advertised on 3rd party websites. What is a LOT There are several types of lots available to trade that are classified according to size. These lot sizes are defined in generic unit terms because the specific currency represented by the units depends on which currency pair is traded.
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The lot size chosen by the trader affects virtually all other aspects of trading. This is because of the massive amount of leverage available in foreign exchange trading which therefore can be viewed as a double edged sword. Due to leverage in Forex a small amount of funds controls a significantly larger amount of funds and therefore can certainly serve to magnify profit potential. But on the other hand, the amount of risk inherent in highly leveraged trading like this is equally magnified. Therefore, it is advisable to use caution when trading with the substantial leverage common in Forex trading.
Highly leveraged trading is aggressive trading that is characterized by both high risk and high potential reward and potential new Forex traders should be aware of the above points.