As a trader, especially a new one, deciding on the right lot size can not only be confusing but also risky if not done properly. This short article will be showing you two (2) different methods to determine an appropriate lot size, and how to place a trade on our platform:
- Fixed lot size
- Equity percentage and lot size
Fixed Lot Size
As the name suggests this involves using a fixed lot size for all your trades. It is recommended that you use 0.01 for every $500 in your account; so for a $1000 trade, you use a 0.02 lot size.
Equity with Stop-Loss Percentage
Here you choose your lot size based on your risk level and stop-loss distance. So how does this work?
- Firstly determine your risk level (recommended to be no more than 2% of your capital)
- Secondly, determine your loss in pips by subtracting your entry price from your stop-loss price. Don’t know how to place a stop-loss on Egmarkets’ MT4? Here’s how to.
Example: A USD/CHF trade at 0.91628 with a stop loss of 0.91600 is a 28 pip loss.
Lot size = Equity x Risk(%) ÷ Stop loss in pips x Pip value
Pip value is determined by the type of account you are using
- A 1,000 unit lot (micro account) has a $0.1 pip value
- A 10,000 unit lot (mini account) has a $1 pip value, and
- A 100,000 unit lot (standard account) has a $10 pip value.
Using the example above with a $500 account, 2% risk, 28pips in loss and a mini account
Lot size = $500 x 0.02 / (28 x $1) = 0.35 mini lots
So, in conclusion, to rightfully determine your lot size, you need to know three (3) things:
- Equity
- Risk in Percentage (recommended maximum of 3%)
- Account type - Micro, Mini or Standard.
