Appropriate position sizing is closely related to effective Risk Management. To understand whether it is best to trade standard, mini or nano lots, the trader must consider several important factors:
- – Total capital base
- – Trade duration
- – Market dynamics and volatility
- – Risk appetite
Here’ a quick reminder of what different lot sizes mean:
1 Micro lot = 1,000 units of a currency
1 Mini lot = 10,000 units.
1 Standard lot = 100,000 units.
By selecting a different lot size, the trader can determine the amount of nominal currency they want to buy/sell, and thereby, select their desired risk exposure per pip.
A pip, which is short for “percentage in point” or “price interest point”. Effectively, it is the smallest increment by which a currency pair could change at any one time.
For most currency pairs, a pip is 0.0001, or one-hundredth of a percent. For pairs that include the Japanese yen (JPY), a pip is 0.01, or 1 percentage point.