Questions about lot size!

Beginner Questions
#1

Hello,

I am learning how to trade Forex, and I have a few questions about lot size.

  1. If you have deposited $1000 and playing with a leverage of 1:100, is the user trading with a standard lot or mini lot?

  2. I have read somewhere that lot size = (risk amount/stoploss) / (pip value/exchange rate). Is that correct?

  3. Assuming the user have $500 and playing with a leverage of 1:50, how do we calculate the lot size if the user wants to risk 5% of his capital and have a stoploss of 25 pips?

  4. Assuming the user have $500 (without leverage), how do we calculate the lot size if the user wants to risk 5% of his capital and have a stoploss of 25 pips?

  5. If the user starts with the same capital and trades with the same risk (like question 3, 4), aren’t the user risking the same amount of money and looking for the same amount of reward (because the user will just adjust the lot size accordingly)? Then what’s the point of using leverage? :confused:

Thanks

#2

Whether you have a micro, mini, or standard account isn’t connected to your account balance or leverage. It’s determined by what type of account you open. :slight_smile:

That formula is used to figure out how many lots to trade, but it’s not the definition of “lot size.” The size of a lot will always be $100,000 for 1 standard lot, $10,000 for a mini lot, and $1000 for a micro lot.

That would be the equation you mentioned above. 5% of $500 is $25. $25 divided by the stoploss is $1. So in this case you want to trade $1 per pip, which equals 1 mini lot on a USD pair.

Leverage isn’t a factor in this. See above answer.

I’m not sure that you understand what leverage is, you may want to read up on the concept some more. But the answer to you question is yes, the trader is risking the same amount per trade. Not necessarily the same reward, but the same risk.

#3

Correction: A standard lot is 100,000 [I]units[/I], with a mini at 10,000 units, and micro at 1000 units.

Units are number of the base currency in the pair you trade. For example, a standard lot of GBP/USD is 100,000 GBP, which is roughly $163,000 at this writing.

#4

You’re right, Rhodytrader. Thanks for the correction. :slight_smile: