Forex Trading Example – How To Calculate Lot
In the forex market currencies are sold in lots. What is a lot in forex? This is the standard amount of the bargain, which is taken as a unit of Forex transactions for the sale or purchase of currency. Lot is equal to 100 000 units, unit is the main of currency, which will trade. In the currency pair USD / CHF, for example, the base currency is considered to be the US dollar, so when you buy or sell a standard lot, its price will be equal to $ 100,000.
For different currency pairs should be applied a different lot. Calculation of the lot is needed to safely Forex transactions with maximum profits and limit losses. When a trader makes a deal, he indicates the amount of currency in lots, which he wants to buy or sell. As said before, 1 lot is equal to $ 100 000 in pair, where the base currency is the US dollar. Not every trader has such sum in the account. So here to help brokerage firms. They provide leverage in the amount of the shortfall or break the lot up to 0, 01.
Let us consider one example of a simple calculation of the trading lots. On lot size has an impact the percentage of acceptable risk (for beginner traders it should not exceed 1% of the deposit) and the level of stop-loss. Example calculation of the lot for the currency pair AUD / USD, Deposit = $ 10,000, stop loss is 50 pips, risk – 1%, and leverage – 1: 100. From the deposit at $10 000, 1% is $100. Divide $100 by 50 pips, we get 2$. According proportions (1 – $10, X – $2) find X, which is equal to 0.2. Thus, we have defined a work lot with which you can safely make Forex transactions.