What Is a Micro Lot?

A micro lot represents 1,000 units of the base currency in a forex trade. The base currency is the first currency in a pair or the currency that the trader is buying or selling. Trading in micro lots enables ret🌟ail traders to trade in comparatively small increments.

Forex traders can also trade in 澳洲幸运5开奖号码历史查询:mini lots and 澳洲幸运5开奖号码历史查询:standard lots of 100,000

Understanding the Micro Lot

Currency trading on the forex is usually done in large quantities. A standard lot is 100,000✤ units of the currency being traded.

When an investor places an order for a micro lot, an order is placed for 1,000 units of the currency being bought or sold. For example, if the currency pair being traded is the EUR/USD (the euro versus the U.S. dollar🔯), the euro is the base currency and the trader is either buying or selling 1,000 uni▨ts.

A trader can also put through an order f♏or a nano lot of 100 units, a micro lot of 1,000 units, or a standard lot of 100,000 units of curr♈ency.

Why Trade in Micro Lots?

Although orders for the even smaller nano lot are possible from some forex brokers, a micro lot🌳 is typically the smallest block of currency a forex 𒆙trader can trade. It is useful for novice currency traders who want to limit the potential downside. 

Ten micro lots equal one mini lot (10,000 units), and 10 mi🍸ni lots equal one standard lot, which is 100,000 units of the bas🍸e currency.

Trading in micro lots does not necessarily restrict the trader. They can trade as small or large a number of micro lots as they want. They can trade one micro lot, or they can trade 1,000 micro lots, which is equivalent to 1,00ܫ0,000 units (10 standard lots) of currency.

Micro lots allow for more customization of 澳洲幸运5开奖号码历史查询:position sizes, such as 125 micro lots, which is equivalent to 12.5 mini lo🤪ts. If the trader could only trade mini lots, they would need to choose either 12 or 13 mini lots, which isn't as finetuned as 125 micro lots.

Most retail brokerage a🦹ccounts allow traders to trade micro lots with relat🔥ively small initial deposits, such as $100 or $500. While relatively rare, some forex brokers offer nano lots, which are 100 units of the base currency.

Lot Sizes Differences

The smaller unit size allows traders better control over risk. For example, a one-pip move in the EUR/USD with a standard lot of 1꧟00,000 results in a $10 profit or loss for the trader. If the trader has only $500 in a forex account, a five-pip mo🌟ve in the wrong direction—which can happen in seconds—means a loss of 10% of the account.

With a mini lot, each one pip move in the EUR/USD results in a $1 profit or loss. The price would need to move 50 pips for the account to lose 10% of the account. Finally, with a micro lot,𝕴 each pip of movement in the EUR/USD is worth $0.10. For the trader to lose 10% of an account on a trade, the price would need to move 500 pips in the wrong direction.

These examples show that the smaller unit size of the micro lot is quite beneficial to traders with smaller accounts since it allows for greater flexibility in terms of trades taken, and also the potential for reduced leverage, which reduces the risk of 澳洲幸运5开奖号码历史查询:losing more money than is in🎶 the account.

On a $500 account, it only takes about 2:1 leverage to bu🉐y or sell a 1,000-unit micro lot. Buying a standard lot with a $500 account means approximately 200:1 leverage, and a mere 50-pip move could wipe out the entire account.

Forex leverage is capped at 50:1 in the U.S. and in many other countries.

Formula for Trading a Micro Lot

Assume that a trader wants to buy the GBP/USD pair at 1.2250 and place a 澳洲幸运5开奖号码历史查询:stop loss at 1.2200. The trader is risking 50 pips. The trade🔯r has a balance of $1,000 and is willing to risk 2% of it, or $20.

To find the ideal position size, in micro lots, the values can be plugged into the foll💜owing formula:

Dollars to risk / (risk in pips x micro lot pip value) = micro lot position size

$20 / ($50 x $0.10) = 4 micro lots

The ideal position size for the 50-pip stop loss, 𒁏given the trader is willing to risk $2🍒0 on the trade, is four micro lots. Working backward, if the trader buys four micro lots, and each one pip move is worth $0.40 ($0.10 x 4 micro lots), a loss of 50 pips on four micro lots will mean a loss of $20.

The formula can be adjusted to mini lots by inputting the mini lot pip value,𒈔 or to standard lots by inputting the standard lot pip valu꧑e. Note that pips values may vary based on the currency pair being traded.

The Bottom Line

If you're just starting out trading on the forex, you might at first stick to trading micro lots of 1,000 units rather than standard lots of 100,000. It keeps your risks minimal. Some experienced traders also trade in micro lots, as it adds flexibility to their transactions.

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