A lot size calculator is used to determine the right lot size that a trader should trade. But, before delving into the details of how a lot size calculator works, it is important that we discuss ‘Lots’.
What is a ‘lot’ in forex?
A ‘lot’ in forex defines the trade size or in simple terms, the number of currency units you need to buy or sell in a trade. A standard lot in forex consists of 100,000 units of the base currency. While most traders trade a standard lot, there are many who trade fractional lot sizes, which is why many brokers allow trading mini and micro lots as well. Here is how many units of base currency come in each lot
- Standard lot – 100,000 units
- Mini lot – 10,000 units
- Micro lot – 1,000 units
- Nano lots – 100 units
How to use a lot size calculator?
You will be asked to choose/enter values in the following fields, so make sure to enter the values correctly to get the best calculation.
Instrument – You can choose the instrument according to your trading strategy. Where some brokers only provide forex pairs, others offer a wide range of instruments from commodities to cryptos and stocks to indices, etc.
Deposit Money – In order to determine the ideal lot size, the account base currency is the key, since it takes into account the market rate and pip value of the selected cross. Mostly, USD is chosen as deposit money, but it could be any for that matter.
Stop-loss (pips) – You need to enter the maximum number of pips you wish to risk in a trade.
Account balance – You just need to enter the account equity.
Risk – The most important section of the lot size calculator is where you are asked to enter the risk percentage. The rule of thumb says that you shouldn’t risk more than 2% of your account equity per trade, as this will allow you to prolong your trading career and also gives you a chance to recoup from previous losing trades.
Once you have entered values in all the fields, you can click on the ‘Calculate’ button.
Results – The lot size calculator makes use of the market price live feed along with the current interbank rate to display the selected currency pair price.
Let’s assume that you have added 100 pips in the stop-loss column and 2% in risk, then the recommended lot size you can trade is 0.05 lot.
Now, the trading calculator is going to display the number of units that 0.05 lot represents and finally, the portion of the account equity at risk or the total value of the position.
Having a clear picture of the lot size would allow you to set the amount of money you wish to use on a particular trade. You will also have a clear overview of the potential profit and loss, so make a habit of using a lot-size calculator to be precise about the lots you should trade.