Lot Sizes and Position Sizing
Proper position sizing is critical for risk management and long-term success.
Standard Lot Sizes
- Standard Lot: 100,000 units of base currency
- Mini Lot: 10,000 units (0.1 lot)
- Micro Lot: 1,000 units (0.01 lot)
- Nano Lot: 100 units (0.001 lot)
Pip Value Calculation
For EUR/USD with a standard lot:
- 1 pip = $10
- For mini lot: 1 pip = $1
- For micro lot: 1 pip = $0.10
Position Sizing Formula
Risk Amount = Account Balance x Risk Percentage Position Size = Risk Amount / (Stop Loss in Pips x Pip Value)Example:
- Account: $10,000
- Risk: 2% = $200
- Stop Loss: 50 pips
- Position Size = $200 / (50 x $10) = 0.4 lots
Golden Rules
- Never risk more than 1-2% per trade
- Calculate position size BEFORE entering
- Adjust size based on stop loss distance
- Consider correlation between positions
- Reduce size during volatile periods