Currency batch sizes can be confusing when you first start. But fearlessly, this post will show you how they work.
Batch size is a little different in Forex compared to other markets, but once you check it out, it’s actually quite simple.
I will also show you why batch size is very important in trading and how to choose an intermediary based on the batch sizes they provide.
The hierarchy of success in trade
Before you start using batch sizes, it’s important to understand it Because batch sizes are important.
They are important because they are an important element of risk management.
Success in trade is determined by prioritizing the following elements of negotiation … in this order from most to least important.
- Commercial psychology
- Risk management
- Business strategy
However, most novice traders have a list of priorities that looks like this:
- Negotiation system
- Negotiation system
- Negotiation system
- Negotiation system
- Commercial Psychology / Risk Management
… and that’s why most aspiring traders fail.
Risk management is much more important to your success than your business strategy, so pay attention to risk per transaction and the size of your batches.
This video will explain how Forex lots work.
What is a Pip?
You will need to understand the concept of pips in Forex to calculate risk, so I will address this briefly before continuing. If you already understand, feel free to move on to the next section.
There are basically 2 types of price quotes in Forex pairs that are commonly quoted.
- Couples with the Japanese yen
- Couples without Japanese yen in the pair
Yen pairs are cited in 2 or 3 decimal places. The second decimal is a complete pip and the third decimal is a pipette or fraction of a pip. It’s like a fraction of a penny in stock prices.
Couples who do not have yen are quoted in 4 or 5 decimal places. The fourth decimal is the complete pip and the fifth decimal is the pipette.
Here are 2 examples of how you would calculate pips for each of the pair types.
Monetary units by lot size
Minimum batch sizes are easier to understand in other markets, as they are usually 1.
Here are some examples:
- 1 Share of shares
- 1 Futures contract
- 1 Options contract
But in Forex, there are some pre-set “packages” of batch size units.
These are the batch sizes available in Forex:
- Standard batch: 100,000 currency units (lot size 1 in MetaTrader)
- Mini lot: 10,000 currency units (batch size of 0.1 in MetaTrader)
- Micro Lot: 1,000 currency units (batch size of 0.01 in MetaTrader)
- Nano Lot: 1 currency unit (lot size of 1 in TradingView / Oanda, not available in MetaTrader)
This is great in theory, but what does live trading mean? Well, it may be easier to think about lot size in terms of pip losses and gains.
Note that the value per pip may vary depending on the broker and the currency pair. But I will use EURUSD as an example because the value of the pipe is generally quite similar to all runners, and is usually a good round number.
- Standard batch: $ 10 / pip
- Mini lot: $ 1 / pip
- Micro Lot: $ 0.1 / pip
- Nano Lot: $ 0.0001
How to find out what batch size to use
To find out the correct batch size that you can use in each, you can use a batch size calculator like this. Most runners have one available.
If you can’t find a calculator on your broker’s website, contact their support and they can point you in the right direction.
To calculate the correct batch size, enter your trade information. In the margin field, enter the maximum risk you want to take in this trade.
Remember that Oanda uses nano batches, so the number of units will be a little different than if you are using a calculator created for MetaTrader or another trading platform. Use the table in the previous section to convert nano batches to mini, micro, or standard batches.
For example, suppose you have a $ 10,000 account and want to risk 1% on a trade, which is a $ 100 risk per trade.
The calculator will look like this:
Because Oanda uses nano batches, the maximum trade size is 4,244 nano batches or 4 micro batches, if rounded down. If you decide to round it off, you will take over the trade with 5 micro lots.
Here is the problem of runners who do not use nano batches.
When a runner only offers mini or micro lots, you will need to round up or down. This means that you will risk more or less than is optimal for your account.
Over time, this can have a detrimental effect on your account so you don’t risk a constant amount per transaction. Therefore, some winning trades will not offset the losing trades.
How to choose an agent according to the size of the lot
Choosing an intermediary based on the size of the lot they offer is quite easy. Start by calculating how much money you will risk per transaction.
For example, if you have a $ 1,000 account and want to risk only 1% per transaction, you can risk $ 10 per transaction. Now go back to the list of pip values in the previous section and how many pips it would be for EURUSD, for each of the batch sizes.
This example would be as follows:
- Standard lot: $ 10 (risk per transaction) / $ 10 (pip value) = 1 risk pip
- Mini lot: $ 10 (risk per transaction) / $ 1 (pip value) = 10 risk pips
- Microlot: $ 10 (risk per operation) / $ 0.1 (pip value) = 100 risk pips
- Nano lot: $ 10 (risk per transaction) / $ 1,000 (pip value) = 100,000 risk pips
Then find out the maximum number of pips you can risk in your business. If you are trading daily and only risk 100 pips or less, you could come out with a micro lot account.
But if you risk more than 100 pips, it’s best to go with a nano lot account.
However, if you have a larger account, such as $ 100,000, a micro batch account is likely to be a good size to operate.
You will need to make the decisions about the batch size that suits you best, but if you know the right batch size before the first operation, you can start with the right foot.
First entry First exit and coverage
There are a couple of other terms you can hear, related to batch sizes and the introduction of Forex trading. They can be a little confusing when you first start, so I want to make you aware of that.
First-In First-Out (FIFO)
In non-U.S. runners, you can enter and exit positions as you wish. This is the way it should be.
However, if you have a U.S.-based account, you’ll need to exit transactions in the order you entered them.
Suppose, then, that you introduce 2 operations of Japanese yen as follows:
- Trade 1: long 2 mini lots
- Trade 2: long 1 mini lot
If you have to follow FIFO rules, you should exit trade 1 before you exit trade 2. Some American brokers will also combine your trades, so you will only see an average of 2 trades, not 2 separate trades.
I’m not a fan of FIFO, but there are ways to fix it. You can read this post on how to do it.
Hedging is when your broker allows you to hold short and long positions in the same trading account.
Again, U.S. accounts can’t do that, but traders do the rest of the work. There is a way to fix this, but some marketers may not need it.
Final thoughts on Forex lot sizes
Batch sizes are an important component of risk management. Understanding how your broker and trading style affect the lot you use is one of the first things you need to learn in trading.
If you use the right amount of risk per trade, you will be able to stay longer and discover the trading game. You use too much risk and you will exploit your account and you will be forced to leave it aside.
Take a few minutes to find out the ideal batch size right now.
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