Mini-Lots

While browsing through the forums, I came across a common theme among many traders. That is that you shouldn't risk more than 1% of your account on one trade. I was hoping someone could help my stupid-*** understand what 1 percent is in a mini account? I assume that it is $100. If so, how many mini lots can I buy with $100?

Sorry again for the amateur questions, but I am just trying to get things clear before I go on further.

Depends your stop loss distance(the point you will cut your losses). Always first calculate your stop loss distance, then figure out what the lot ammount you use so that the pips lost reflect your $ you are willing to lose.

i don't know why people find this so damn hard, but here's the simple solution...

start as small as you absolutely possibly can (i.e. 0.01 lots normally), then once you get a feel for how much that loses you when you get stopped out with your setups you can increase the lot size a little to match. you already know roughly how much you lose each time you get stopped, so if you up it to 0.02 lots then obviously you are now losing double, 0.03 = triple, 0.04 = quadruple and so on.

just bump it a little at a time and keep an eye on the equity curve, assuming there is a curve and not a straight drop.

the one percent is based on account size and the size of your stop loss. here is an example with a $5000 account with a 15 pip stop loss:

account size: $5,000
stop loss: 15 pips

find one percent of the account:
$5,000 * 0.01 (1%) = $50

divide the 1% by the number of pips in the stop loss to find out the cost per pip:
$50 / 15 pips = $3.33 per pip

next, change the dollars per pip into lots. ($10 per pip per lot):
$3.33 per pip / $10 per pip per lot = 0.33 lots (3.3 mini lots, 33 micro lots)

now, you would place a trade of 0.33 lots (3.3 micro lots). this would be risking one percent of your account.

thank you very much guys, sorry again.

i was just wondering what you meant by "stopped out"?

it is when your trade is closed because it hit the stop loss. and dont worry, thats the entire point of the forum. we wouldn't be looking at these posts if we didnt expect a ton of questions.

should have known that.

one more question....i use forex.com and i dont think i can get anything less than a mini lot...would anyone know how that works?

if they dont have it., you cant get it from them. you might be able to sign up for a special high leverage account. try contacting their support or customer service and ask around a bit.

Hi Proda,

First of all, I think it's good that you're focusing on the 1% rule at an early stage in your trading. It really is important to risk very little per trade. Even risking 5% per trade is very dangerous. So keep it to 1%, maybe occasionally 2%, but usually just 1%.

Next, in order to be risking 1% per trade, you must be using stop loss orders. If you don't use a stop, even on just one trade, then you are risking 100% of your account on that trade. It's perfectly possible that you could come check on your trade and find out that you got a margin call and basically killed your account. So ALWAYS use stops.

When you are ready to place a trade, you should first decide where you want to enter and where you will place your stop. It's a good idea to choose the position of your stop based on the chart. A good place it to put it just behind a recent support/resistance area. Some people always use a fixed distance for their stop, e.g. they always use a 20-pip stop, but sometimes that is too risky.

Once you know where you want to enter and where you want to place your stop, count the distance from your entry point to the stop. Then you can calculate how many lots you should trade to make sure you're only risking 1% of your account. blacksun1 explained it very well with an example on post #4 of this thread. The main rule of thumb is that for one "standard lot" (100,000 units of currency), the profit/loss is $10 per pip. That means that if you have a trade open with one standard lot (100,000 units), then every time the price moves by one pip, you account will go up or down by $10. For a "mini lot" (10,000 units), it is $1 per pip. Technically, it's not always exactly $1 per pip with one mini lot...It depends what the currency pair is and what currency your account is funded with, but that's a good estimate. Here is another example:

If your account is $1000. Then 1% of that is $1000/100 = $10. If you want to enter at a price of 1.3640 and you want to put your stop at 1.3610, then that is a 30-pip risk (13640 - 13610 = 30). Now if you open that trade with one mini lot, remember that for every pip that the price moves, you will gain or lose $1. So if that trade moves 30 pips against you and you get stopped out, you will lose $30. But that's not good, you just lost 3%, not 1%. So really you shouldn't trade 1 mini lot, you should trade 1/3 = 0.33333 mini lots (or 3333 units).

The general formula is:
# of mini lots you should trade = (account size)*(0.01)/(# pips risked)

Check with your broker, forex.com. They might have a tool in their software that lets you calculate the profit/loss for a trade. Maybe you can enter the currency pair, the number of lots, buy or sell, the entry price and the exit price...then it will tell you how much you will gain or lose. That is another way you could calculate the number of lots to trade. Just keep trying different numbers of lots until the amount you lose (if it gets stopped out) is equal to 1% of your account.

This is very important: If you find that the number of mini lots you should trade is less than one (like 0.333 in the example above), and if your broker doesn't let you trade less than one mini lot, then you should not take the trade. Some brokers have a minimum trade size, like one mini lot. If you find that taking the trade with one mini lot would result is risking more than 1% of your account (if it gets stopped out), then you would be breaking the 1% rule by taking that trade. Some brokers, like OANDA let you trade any number of units, there is no minimum trade size. So you can always scale your trade size up or down so that you are risking exactly 1% of your account.