value relative to another is measured in pips, which is a very, very small percentage of a unit of currencys value. A Helpful Visualization If you have had the pleasure of reading Mark Douglas' Trading In The Zone, you may remember the analogy he provides to traders he has coached that is shared in the book. But what does 1 lot mean for commodities like gold, realtime bitcoin charts silver or oil? Now imagine that the larger the trade you place the smaller the support or road under you becomes. A micro lot is a lot of 1000 units of your accounting funding currency. Mini Lot If you are new in forex trading, I strongly recommend you to use mini, micro or nano lots to avoid big losses. In the example above, the broker required a one percent margin.
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Ill try to explain all to you as much as I can. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account. This is how forex trading using leverage works. In the past, spot forex was only traded in specific amounts called lots, or basically the number of currency units you will buy or sell. That's a 100,000 trade if you are trading in dollars. This is a safety mechanism to prevent your account balance from going negative. Hence, finding a suitable forex lot size for your trade can help you lock down the amount of risk you would be taking. What is a, micro. When you place an extremely large trade size relative to your accounts, the road gets as narrow as a tightrope wire, such that any small movement in the market much like a gust of wind in the example, could send a trader the point. See Also: What is Leverage? Most of the brokers offer up to forex micro lot only.