FOREX Lot Basics
Written by admin on December 31st, 2011
Trading on a real live account requires a full understanding on what FOREX lot really means and how it affects your trading. Lot in FOREX is the amount of cash you put into a single transaction. You are going to risk more than you think considering that the exact amount of cash you manipulate relies on leverage.
In case your account has 100:1 leverage, 1 FOREX lot will allow you control $100,000 USD, (10,000 USD for 1 mini-lot). You will control $200,000 USD or $20,000 USD respectively if the leverage of your account is set to 200:1.
If you take leveraging for granted when you are choosing number of FOREX lots for specific deal, you are either playing too risky or miss a significant chunk of profit.
I noticed that various FX brokers are observing the following leverage levels: 20:1, 50:1, 100:1 and 200:1. Before making a trade, always calculate the total amount of money you control based on lot size and leverage.
To overcome this problem, you may use an alternative way of fixing your profits. Just use a fixed take-profit order, but instead of placing it to your estimated profit target, place it beyond the target towards a much greater profit in accordance with the average daily range of the currency pair you’re trading (if the later is more than what you have forecasted, of course). For EURUSD the average daily range is approximately 120 pips. So in case you trade EURUSD pair, you must set your take-profits not closer than +120 pips to the point where you opened your position.
There are many pros should you do so. If market begins to move towards the daily, weekly, and global trend the same day you open your position, there is a chance that your large profit target is going to be reached. And you may always close your open position by hand in the event that market reaches your forecasted target and flats out. In case market continues to edge higher, you can place a trailing stop order beyond your big +120 pip take.
This can give you a apparent idea of what you are going to risk, and exactly how good your profit will probably be.
Tags: FOREX Lot, forex trading