Lot and position size
Volume is how much you buy. It decides how much money each step of price gives you or takes away.
Lot and position size — what it is?
A lot is the standard unit of volume. On forex a full lot equals 100,000 units of the base currency, and the value of one pip of movement is derived from that.
Position volume determines how much money each move in price is worth. It does not determine your risk: risk is set by volume together with the distance to your stop.
The right order is the reverse of the intuitive one. First you decide what percentage of your deposit you're risking, then you see where your markup puts the stop, and only then you calculate volume.
Lot and position size — how it is built?
Volume = (deposit × risk percentage) ÷ (distance to stop in pips × pip value). It follows from this formula that a wide stop isn't forbidden: it simply requires a smaller volume.
Lot and position size — common mistakes
Taking your "usual" volume without recalculating for the distance to the stop.
Increasing volume after a losing streak to win it back. That's how martingale works, and it zeroes the account.
Confusing volume with risk. A one-lot position with a five-pip stop risks less than 0.1 lot with a two-hundred-pip stop.
Counting risk in money rather than in percent: as the deposit grows, the rule stops scaling.
Related to
Glossary
- lot
- the standard unit of size. On forex a full lot is 100,000 units of the base currency.
- volume
- the number of trades or contracts in a period.
- forex
- the over-the-counter currency exchange market.
- base currency
- the first currency in a pair. In EUR/USD the base is the euro, and the price shows how many dollars one euro costs.
- pip
- the minimum price step in a currency pair. For most pairs it is the fourth decimal place, for yen pairs the second.
- position
- an open trade.