Forex Lot Size Calculator
What Is A Lot Size In Forex
A lot size in forex trading refers to the unit of whichever currency is being traded. Typically, there are four types of lot sizes:
Standard Lot: 100,000 units of the base currency.
Mini Lot: 10,000 units of the base currency.
Micro Lot: 1,000 units of the base currency.
Nano Lot: 100 units of the base currency.
The lot size determines how much you are risking per pip (or point in percentage) of price movement, making it a critical component of determining your position size.
Importance of Calculating the Correct Lot Size
Correctly calculating your lot size is vital for managing risk and ensuring your trades align with your overall trading strategy. Since risk management is such a vital part of trading, using either a built in lot size calculator on your trading platform, or using the calculator above prevents overexposure to the market and protects your capital from large losses.
Using a lot size calculator also helps with consistency by ensuring you have uniform risk across different trades regardless of currency pair or account size, where risk is based on a percentage of your overall account size, i.e. 0.5%, or 1% risk per trade.
A forex lot size calculator is a valuable tool for determining the appropriate trade size, and it relies on several key components to ensure the calculated lot size is correct. One of these components is the account balance, which is obviously important for sizing a trade. By knowing the total available capital, the calculator can factor in how much of the account is at risk for each trade, ensuring that you don’t over risk on a single trade.
How To Use a Forex Lot Size Calculator
Now, let’s go over how to use a forex lot size calculator so you can properly size your trades. This is something that most trading platforms should have built in, but in some cases it may be helpful to have an external calculator such as the one above for instances when you're using the mobile version of the platform (like MT4/MT5), where you can't use an position size calculator EA.
Percent Risk Per Trade
Another critical element is the risk percentage per trade, a parameter that reflects the proportion of the account balance a trader is willing to risk on a single trade. A common practice among traders is to set this percentage at 0.5% to 1% of their total account balance, which helps preserve your account in the event of a losing streak.
Stop Loss Level
Stop-loss distance, usually measured in pips, or sometimes ticks, plays a central role in the calculation of potential loss for a given trade. The calculator uses this input to determine how far the market can move against the trader before the stop-loss is triggered, directly affecting the trade size. A wider stop loss typically results in a smaller position size, while a tighter stop loss allows for a larger position size and more potential reward for that particular trade, because the market needs to move less to hit a positive +R. Tighter stop losses also carry inherently more risk, as there is less margin for the trade to go against you.
Currency Pair
The currency pair being traded also heavily influences the calculations due to variations in pip value. Since the value of a pip differs depending on the currency pair, the lot size calculator adjusts the position size accordingly to ensure that the risk remains consistent across different trades. For example, trading EUR/USD involves an entirely different pip value compared to trading USD/JPY.
Account Leverage
Leverage adds another layer of complexity to position sizing. Leverage allows traders to control larger positions than their account balance would otherwise permit, amplifying both potential gains and losses. When trading forex, it’s almost a requirement to use leverage because the price movement between currency pairs is so incremental that you’d have almost zero exposure without using margin. The calculator accounts for the amount of leverage to determine the actual margin required so they can actually put on the trade, while taking advantage of leverage effectively.
Using The Calculator
How To Use The Forex Lot Size Calculator:
Enter your account balance.
Enter your risk percentage.
Input your stop loss distance (in pips).
Select the currency pair.
To use the calculator simply input all of the required information above to determine the number of lots you want to put on for your position. Again, most trade platforms will have a built in lot size calculator, but if you’re just getting started and want to understand the basics, this is a super useful tool for practicing lot sizing so that when you are ready to trade the live markets, you can do it with confidence.
Commissions & Spreads
Something else to consider is that most brokers and even prop firms will charge a commission per lot, usually something like $5 per lot either round-trip or to enter, and to exit. So if you enter a position with 20 lots, expect to automatically be out $100 in commission, and depending on the pair you’ll also need to also factor in the spread between the bid and ask, which is also another cost of doing business.
This is often why some traders will cover commissions and spread by pushing their stop loss a bit above or below their entry level (depending on if they are long or short) to cover those costs.