Lot sizing

What a lot is

In the foreign exchange market, lot sizing is how the size of a trade is measured. A lot is a standardized amount of currency; the standard lot is 100,000 units of the base currency. You can also trade smaller sizes: a mini lot of 10,000 units and a micro lot of 1,000 units.

A simple formula: lot size multiplied by the number of pips equals the total gain or loss.

Sizing from the stop

The right lot size for a trade depends on the size of the account and the amount of risk you are willing to take. As a rule, risk no more than 1 to 2 percent of the account on any single trade, and set the lot size to fit.

Start from the stop loss, the level where you will exit if the market moves against you.

Say you are willing to risk 100 dollars on a trade and your stop is 50 pips from the entry. You are risking 2 dollars per pip, because 100 dollars divided by 50 pips is 2 dollars per pip.

Now turn that into lots. On EUR/USD at 1.2000 each pip on a standard lot is worth 10 dollars, because 0.0001 multiplied by 100,000 is 10. If you can risk 2 dollars per pip, you can trade 0.2 lots, because 2 dollars per pip divided by 10 dollars per pip is 0.2.

Use the calculator

Do the conversion with a calculator rather than in your head; it is faster and it does not slip a decimal. The position size calculator in the Trade Desk takes your account, your risk percent and your stop distance and returns the lot size for the pair you are about to trade.