Many traders experience quick margin calls in the forex market not because their market predictions are wrong, but due to a seemingly simple yet easily overlooked decision—the choice of Lot size. Beginners often make two common mistakes: either choosing too small a Lot out of fear, or too large a Lot out of greed. However, true experts never select Lot sizes based on gut feeling; they determine the size of each trade using formulas and systematic thinking. This article will help you understand the essence of Lot and learn how to calculate it precisely like professional traders.
What exactly does Lot mean?
To understand Lot, we first need to consider the unique characteristics of the forex market. Unlike the stock market, forex price movements are extremely small. For example, in EUR/USD, a change from 1.0850 to 1.0851 is called 1 Pip (point), but the actual value of this "point" is only 0.0001 USD.