Micro Lot: Definition, Example, Trading Formula, Vs. Standard Lot (2024)

FAQs

Micro Lot: Definition, Example, Trading Formula, Vs. Standard Lot? ›

A micro lot (it can also be written as microlot or micro-lot) is 0.01 of a standard lot or 1000 units of the base account currency. A nano lot (it can also be written as nanolot to nano-lot) is 0.001 of standard lot or 100 account base currency units.

A standard lot size is 100,000 units of the base currency in a forex trade, mini-lots are 10,000 units and micro-lots are 1,000 units. When choosing the most suitable lot size for them, traders should consider the size of their account, risk tolerance and trading strategy, among other factors.

Earlier, we said that the best lot size for a beginner is a micro lot, meaning you must at least have 1000 units to begin with this account. But if you cannot afford a $1000 account, you can always go for leverage of 1:10 if you have $100. Let's say for instance, you go for leverage of 1:1000 with only $100.

Essentially, a standard account lot is equal to ten mini account lots, which is, in turn, equal to ten micro account lots. While micro accounts are geared toward ordinary retail traders, standard accounts are usually used by large traders and those hoping to make a living or significant income through forex trading.

Remember that a standard lot represents 100,000 currency units, a mini lot is 10,000 units, and a micro lot is 1,000 units. You must consider several factors to calculate your lot size position. These factors include your account balance, chosen currency pair, and risk aversion.

A micro lot (it can also be written as microlot or micro-lot) is 0.01 of a standard lot or 1000 units of the base account currency.

Ten micro lots equal one mini lot (10,000 units), and 10 mini lots equal one standard lot, which is 100,000 units of the base currency.

However , a general rule of thumb is to risk no more than 1 - 2 % of your account balance per trade . This means that for a 5,000 dollar account , the maximum lot size should be 0.05 to 0.1 lots . This allows for proper risk management and minimizes the potential for significant losses .

Professional traders' earnings can exceed 500% a year. When you trade forex with $100, it's recommended to open trades of no more than 0.01-0.05 lots so that risks should not exceed 5% of the deposit amount. To trade forex with $100, you will need the maximum leverage to lower the margin amount blocked by the broker.

Micro accounts generally offer lower leverage compared to standard accounts. Leverage allows traders to control larger positions with a smaller amount of capital. In micro accounts, the leverage may range from 1:10 to 1:500, whereas standard accounts often offer leverage options up to 1:100 or higher.

What are the disadvantages of micro accounts? ›

However, if you're actively seeking new shareholder buy-in or funding that will allow your company to grow, micro-entity accounts may hold you back. Without an in-depth financial picture of your operations, you could find it harder to secure further investment or loans that make expansion possible.

Micro accounts offer an opportunity to test new trading strategies or explore different markets with minimal risk. Before applying a new strategy on a larger scale, traders can use micro accounts to evaluate its effectiveness, make necessary adjustments, and refine their approach based on real-market conditions.

Leverage ratios of around 1:10 to 1:30 are commonly recommended for mini accounts. That means using 10 times to 30 times the capital you have available. So opening a trade with $10 using 1:30 leverage means you could control a position worth $300.

Position sizing based on risk percentage

This percentage represents the trader's risk per trade. Once they have established the amount they are comfortable risking, they can calculate the appropriate lot size for a specific trade using the following formula: Lot Size = (Risk Amount / (Stop Loss in pips * Pip Value)).

A standard lot is the largest, representing 100,000 units of the base currency.

You have $500 and decide that the acceptable risk level is 2% of your account. With 1:100 leverage, your need to choose ($500 * 0.02) / 100,000 * 100 = 0.01 lots. With $1000 on your account, you will be able to trade ($1000 * 0.02) 100,000 * 100 = 0.02 lots.

A micro forex lot is one-tenth the size of a mini lot. That means it's worth 1000 units of currency. Pip movements result in a cash swing of 1 currency unit, eg €1 if you were trading EUR. Micro lots also require less leverage, so a swing won't have as much of a financial impact as with larger lot sizes.

For example, the standard lot size for the stock market is 100 shares – it is the number of shares that are bought and sold in a normal transaction. This is also known as a 'round lot'. Exchange traded funds (ETFs) are priced in the same way, so that one lot is equal to 100 shares.

Description 1 Cent lot equals 0,01 of a Standard lot or 1,000 units. The max order volume is 500 cent lots, which is 5 Standard lots or 500,000 units. Cent accounts involve a different level of risk. We recommend them for beginner traders.