A lot is a unit of measure in the forex trading market. Therefore, for traders, how to calculate lots in forex is a fundamental skill that must be possessed. Simply put, it is defined as the base currency prevailing in the market.
The lot as a size reference also affects the level of risk, namely the trader's profits and losses directly. The greater the volume of 1 lot the greater the possibility of risk that must be borne. In other words, the specified volume determines the risk management of the transactions made.
The following article will explain in detail how to calculate lots in forex trading, including understanding it as a unit of volume.
What is Lot and How Much Is It?
As mentioned earlier, it is a universal unit used in trading activities. Basically, each trader can buy a maximum of 100 lots. Before learning how to calculate lots in forex, know its size first in a scale of trading. With a lower or minimum limit of 0.01 lots.
Taking the example of a minimum investment of $1,052 and a leverage of 1:100, the minimum deposit is $10.52. If this minimum transaction can be purchased, then a trader can start trading. So far, easy to understand right?
For instance, a trader managed to buy the Yen currency with the JPN/USD rate at 0.1735 per 1 EUR with an estimated position volume of 0.01. After the exchange rate increases 10 points to 0.1745, traders will start selling Yen. Here, the trader's earnings will amount to 0.01 in base units multiplied by 0.0001 (1 point).
How to Calculate Lots in Forex Trading?
After knowing its size per unit, you will easily understand how to calculate lots in forex. However, calculating it is not just converting into the amount of profit that will be received later.
Therefore, you can start learning to use a calculator instead of calculating manually. This is because the calculation of its size is related to the optimization of the position volume and the amount of the deposit.
Although a calculator can help you calculate, it needs to be adjusted to the risk context. This is because manual calculations are still the basis for planning the trading volume. If you want to calculate manually, you can use the formula below to calculate based on risk.
Lot volume = (% risk X Deposit): A X (Price 1 – Price 2)
This risk percentage is the deposit amount that a trader can allocate for trading. A is defined as equal to 1 for long positions and -1 for short positions. Then, Price 1 and Price 2 are the open and stop loss prices. Stop loss levels are options for average volatility.
Referring to how to calculate lots in forex, you can pay attention to the calculations below. For example, a deposit of $3,000 and a risk percentage of 5% per trade, with a leverage of 1:100 and a stop loss of 50 points.
Therefore, the total position is $300,000 by multiplying the deposit and leverage. If you want to invest 100% of your money, the maximum lot volume will be 2.4 lots with the EUR/USD exchange rate at $1.2500.
However, if based on risk management, the amount of risk per trade is $150, aka 5% of $3,000. However, there is still a maximum drawdown ability of 50 points. So, the maximum price of this one point is 150 divided by 50 which means $3.
This calculation contains a lot of analysis to learn. As a prospect trader, you should learn it in order to gain profit and avoid losses. If you do not have time to learn, you can actually use Didimax forex broker as the best forex broker in Indonesia.
In this article, you have learned how to calculate lots in forex trading. Therefore, it is important for you to know its steps in an orderly way.