Compounding growth and lot size limits?

Hi there,

Newbie question time!

I understand how compounding works and the growth potential it represents, but I have a problem i can't see round:

Am I right in thinking, that as my funds grow, I need to increase the number of lots that I am trading? If I have a micro account to start with that has a 2 lot limit on it, does that hamper my ability to use compound growth? Or do I need to open more positions?

Regards
Ath

Well that would be the most popular way to compound, for example 1% risk on $1500 is greater than 1% risk on $1000 so trade size increases accordingly.


If your account balance outgrows a micro account then it's probably simpler to progress to a mini account rather than manage multiple trades. Alternatively you could use a brøker which doesn't have fixed lot sizes, allowing you to trade in any amount you choose. Oanda is one, I'm sure there must be others.

Trading Lots
An important difference between the stock and commodity markets versus the forex market involves the manner in which trades are sized.

Instead of shares of stock or bushels of grain, forex transactions need to specify the amount of currency involved.

What are Lots?

Lots are the minimum transaction size in a market, and futures markets such as the Chicago IMM specify lot sizes for each traded product, including for currency futures.

Although trading in the Interbank forex market generally does not involve lots since virtually any transaction size can be executed, retail forex brokers have introduced the concept of lots to their forex trading clients.

Like in the currency futures market, these lots consist of minimum currency amounts that can be traded depending on the type of account you set up.

Generally, three basic lot sizes exist in common usage in the retail forex market. These are standard, mini and micro lots, and each is made up of a different amount of base currency. These lot sizes will be described in greater detail below.

Standard Lots

A standard lot in the forex market typically consists of 100,000 units of the base currency for a currency pair. Therefore, a standard lot forex trading account would theoretically need to be funded with 100,000 units of base currency to exchange it for an equivalent amount of another currency in a forex transaction.

Furthermore, the funding of the account can usually be done in a variety of currencies including the Euro or Sterling depending on the forex broker.

Nevertheless, the standard lot can generally be traded with a much lower amount of money in the forex account depending on the margin and the leverage that the broker is willing to extend to their customers.

For example, using a standard lot size of 100,000 Euros would have its minimum fluctuation of one pip or 0.0001 worth $10 USD for the EUR/USD currency pair.

Mini Lots

Mini lots usually consist of forex trading units which are one tenth the size of standard lots. In other words, a mini lot would consist of 10,000 units of the base currency. Trading in mini lots makes much more sense with a $1,000 account than attempting to trade a standard lot.

With the same amount of leverage and margin as the above example, a trader trading in mini lots can trade up to 10 mini lots with a $1,000 deposit. For the EUR/USD currency pair, the value of a pip on a mini lot of 10,000 Euros is just $1.

This makes taking positions in mini lots considerably less capital intensive than with trading standard lots. It also allows traders to hold positions in other currency pairs to spread the considerable risk involved in forex trading around.

Micro Lots

As a rule, micro lots consist of lots that are one tenth the size of a mini lot, or 1,000 units of base currency.

Micro lots can be traded using higher leverage in many cases. They represent a fairly inexpensive way for a person to begin trading without the risk of losing too much money at the beginning of their trading career.

In the EUR/USD currency pair, the pip size for a 1,000 Euro micro lot is only $0.10. This provides an opportunity to trade in the forex market to less well capitalized traders.

I have a good lot indicator. It may help you more.

Lot suggestion is an indicator which shows you the suggested lot size based on the user input risk percentage from your equity. Simply drag the red line to the position where your stop loss will be and the indicator will calculate automatically on what lot size you should open your order so you will not loose more than X percent if the stop loss is reached.

On the reply, yes and am sure that these details will help the newbie figure out the basics. But on another topic, this is the second indicator link you are posting here, so got to ask, are you the developer for the "pay for use" product in question?

If you insist on copying and pasting other peoples work then at least have the decency to credit the original author!


No need to buy such things when they're freely available around the internet!

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Some broker even offer nano lots 0.001 lots that i 100 units witch means 1 cent per pip