How to choose the right lot for a deposit of $100 or more
For some beginners the word “lot” is quite incomprehensible, but it means simply the amount of currency participating in transactions. The most typical size is about 100,000 currency unit in the transaction. Here is an example. Imagine that we are changing the francs to a yen with a volume of 1 lot, which means that we actually sold 100,000 francs at a price of the yen. The size of the expected profit, of course, depends on the size of the rate, and it is not surprising that there is wish to put more. At the same time, there is another side to the deal – a trader risks losing quite a lot.
- Management rules of a commercial lot
- How to correctly calculate the lot
- How the lot management rules work
Most beginners even do not have this basic information, so they often put too large lots and merge a significant part of their transactions, completely disappointed in the Forex market. Fortunately, there is a way to avoid this development.
Management rules of a commercial lot
To safely execute transactions it is important to learn and follow the rules of money management on trade and learn how to calculate the optimal lot number for any particular transaction. Thus, acquiring the necessary skills, you will surely reduce the risk of losing the deposit to an absolute minimum.
How to correctly calculate the lot
Yes, in general, it is not difficult. To do this, currency traders will only need to know two indicators:
- Number of points on the planned losses;
- The percentage of work is a lot on the total amount of the deposit.
After receiving the initial data we begin the necessary calculations. The amount of the deposit is multiplied by the percentage that the trader has set. It should be based on this work on the main principles of capital management, and even the amount that can be lost in the trade. The result is divided into one hundred, and then it is not difficult to calculate the amount that the trader can lose without going over to the state of extreme stress.
How the lot management rules work
Consider the situation in an extremely simple example. Imagine that a person conceived to buy a pair of francs and yen. And, say, a strategy is used in which the maximum losses do not exceed 1% of the deposit level, which, for clarity, for example, will be a thousand yen.
Having bought francs the currency trader is fully aware that the deal can be closed at a loss of 1% of the total amount of the deposit, i.e. 10 yen. And the stop-loss determined in this case is 20 points. So we will not lose more than 10 yen. That is, the transaction in this case should be opened with the volume of the lot 0.05 – thus it turns out that we successfully act on the strategy and money-management.
Some beginners do not calculate the optimal lot for themselves, considering that it is too difficult. However, for the sake of justice we note that some professional traders consider such analyzes not the most necessary and useful.
Perhaps, to play it safe and to overdare is harmful. The main thing is that the number of enclosed efforts indulges the obtained result. And in this case the trading calculator will help. Good and profitable Forex trading for you!