Lot is basically a unit of measure used to indicate the volume of a position. This is a fixed amount of base currency that applies in the forex trading market. The volume in the forex market always uses lot units, where the size of this lot also directly affects the level of risk. In other words, the greater the volume of 1 forex lot, the greater the potential risk that must be borne. Here is a more complete review of calculations in the world of forex trading.

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What is a Lot in Forex

As mentioned at the beginning of this article, lots in forex are a model used to build an optimal risk management system. In a simpler understanding, lots can be considered as a standard unit for measuring the volume of currency positions opened by traders. Namely, the amount of money that traders want to invest by buying currency so that it can later be sold at a higher price.

The calculation of lots itself refers to one component of the risk management system that is highly recommended for traders. Especially for traders who want to take a more balanced and structured trading approach. In the forex market itself, positions can only be opened in a certain volume of trading units called lots.

 

How Much Is 1 Lot of Forex

In general, the upper limit of this account is 100 lots with a lower limit of 0.01 lots. Based on this example, with a minimum investment of 1,184 US dollars and a leverage of 1:100, the minimum deposit is 11.84 US dollars. This is a sufficient minimum deposit for traders to start. This can also be calculated using a forex calculator because the value of 1 lot of forex can vary depending on the leverage.

For example, a trader successfully buys Euro currency with EUR/USD rate at 1.1845 per 1 EUR with an estimated position volume of 0.01 lot. After the exchange rate increases by 10 points to 1.1855, the trader will start selling Euro. Here, the trader's income will be 1000 or 0.01 lot in basic units multiplied by 0.0001 (1 point) multiplied by 10 (profit).

The trader's income is 1 US dollar. The trader invested 10 US dollars with a leverage of 1:100 and the exchange rate increased by 10 points, so the trader received 1 US dollar. You need to remember, the value of one point is for a standard lot. A full lot, aka 1 point, generates a profit of 10 US dollars. A 1-point mini lot generates minus 1 US dollar. A 1-point micro lot generates minus 10 cents.


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Understanding What a Lot Is in Forex: Its Function and Size

How to Calculate Lot Volume in Forex

How to calculate lot volume in forex is not just converting 1 lot of forex into the amount of profit that will be received later. For that, you are advised to use a forex calculator rather than calculating manually. The reason why you should calculate this lot size is related to optimizing the position volume and the amount of deposit.

You must consider the risk and the desired return on investment. Calculating 1 lot of forex or the entire lot is important because accurate lot selection and the process of increasing positions will allow you to choose a trading model that is more stable and resistant to drawdowns, corrections, rollbacks, or volatility.

Although this forex calculator can help you to calculate lots, on average this calculator system does not allow you to calculate lot volume especially in the context of risk level. Whereas this is an important point in planning the trading volume that you will take later. To make it easier for you, here is a formula for calculating lots related to the risk level that you can apply.

Lot volume = (%risk X Deposit): A X (Price 1 – Price 2)

This risk percentage (%risk) is the amount of deposit that a trader can allocate to trade. While A is a coefficient that is equal to 1 for a buy position and -1 for a sell position. Then, Price1 and Price2 are the opening price and stop loss level. The stop loss level here is one of the options for average or maximum volatility.

How to Calculate Lots in Forex

To explain how to calculate lots in forex, including answering the question of how much is 1 lot of forex and its calculation, you can read the review below. With a deposit of 3,000 US dollars, then a risk percentage of 5% per trade, with a leverage of 1:100 and a stop loss of 50 points.

From here, it is known that the number of positions is 300,000 US dollars by multiplying the deposit and leverage. If the trader then wants to invest 100% of his money in one trading process, then the maximum lot volume will be 2.4 lots with the EUR/USD exchange rate at 1.2500 US dollars.

However, since we will stick to the risk management rules, the risk amount per trade is 150 US dollars, or 5% of 3,000 US dollars. With a maximum drawdown capability of 50 points and a maximum price of one point, this is 150 divided by 50, which means 3 US dollars. As discussed above, 1 standard forex lot is usually worth 10 US dollars.

This means that the maximum lot allowed will be 0.3 lots. For this 0.3 lot, we will need 37,500 US dollars, so we will invest 375 US dollars (12.5% ​​of the deposit) with a leverage of 1:100. This means that the lot volume depends on the drawdown allowed by the trader in this calculation.

In this calculation process, if traders continue to adhere to the rules that a fixed percentage of the deposit per transaction and a fixed percentage of the deposit for all transactions in the forex market, then leverage will not have much effect later. The larger the lot volume, the higher the value of the item, and the faster the deposit will be liquidated if a price reversal occurs.

So, what does 1 lot of forex or let's say the lot volume depend on? This lot volume depends on the volatility of the asset and its assessment method, namely the stop loss level. It also depends on the level of risk that can be accepted for all open trades that have been previously determined by traders to be adhered to by themselves. As well as the amount of the trader's own deposit. Including the leverage applied depending on the calculation method.

That's the review to answer the question of how much is 1 lot of forex and its more precise calculations in the world of forex trading itself. Of course, there are still many ways that you can learn and do besides the methods that have been explained. However, the most important thing is that you already understand the basics first. Keep practicing and learning trading in your spare time and learn more powerful trading strategy tips.

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