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What is a Lot in Forex?

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What is a Lot in Forex?

One of the key terms that you are bound to come across time and again in forex trading is “lot”. Here we will take a look in more detail about what exactly a lot is in forex so the next time you are trading lots, you will understand exactly what is entailed.

Beyond that, we will also look at the various types of forex lots you can encounter when trading with your top forex broker. Some of these will be more ideally suited to new traders or those who many want to steer a little on the safer side when it comes to risk management in trading.

Forex Lot Types Explained

In the simplest of forms, the forex lot as you know it in forex trading, is simply a measurement of currency units and a way of determining how many currency units are required for a trade.

Forex lots and the terminology around lot trading is widely used still among almost all of the top trading brokers in the sector. Even though a few now allow for more flexible trading styles, mention of forex lots is still very prevalent. You will also hear plenty of mention of forex lot, and lot trading if you are choosing a new broker and checking out some of the best forex broker reviews.

With that in mind then, there are typically 4 forex lot sizes that you will come across when trading forex.

Standard Lot – 100,000 Currency Units

The standard forex lot is what you will see most commonly when trading with the standard account types of many forex brokers. The standard lot is 100,000 currency units, so typically has a value of $100,000 if we take trading in US Dollars as an example.

The majority of experienced forex traders are accustomed to trading at this level and it is worth noting that due to leverage in forex, you do not need to have a full $100,000 in your account to trade a standard lot. When most refer to a lot in forex trading, this is also the typical value they are referring to.

Mini Lot – 10,000 Currency Units

A mini forex lot is a great choice for those who may want to trade with a lower, or perhaps no leverage at all. This type of lot is again very common with most top forex brokers offering these types of lots that contain 10,000 currency units which would have a typical value of $10,000 if trading USD.

Even though they are referred to as “mini” lots traded at this level still represent a very significant investment for many traders.

Micro Lot – 1,000 Currency Units

A micro lot in forex is the next smaller step on the trading ladder again. Coming in at just 1,000 currency units means that this value in the case of our USD trading example would be just $1000. While micro lots and forex micro trading accounts are available with some brokers, they are not always accessible. They do however provide another ideal platform for new forex traders to get a good,value for money taste of the industry. This level can provide an excellent stepping stone for those who may have already tried out a nano account or wanting to move straight from demo account trading without committing 100%.

Nano Lot – 100 Currency Units

The smallest trading lot size available is the nano lot. This trading lot is comprised of 100 currency units which have a total value of $100 in the case of our USD trading example. The nano lot is again more rare to see, but is certainly still available with many top forex trading brokers. This is a very ideal starting lot size for those who wish to try out forex trading for the first time. It offers real money trading beyond a demo trading account, but with a much smaller level of risk involved.

Forex Lot Differences Between Brokers

As with everything, there is some room for variation within the forex trading sector. The terms described above are generally used by both traders and brokers across the board. You will sometimes see lots described in decimal terms in comparison with a standard forex lot as follows:

Mini Lot: 0.1 Standard Lots
Micro Lot: 0.01 Standard Lots
Nano Lot: 0.001 Standard Lots

This is exactly the same thing in the majority of cases. Many brokers also make “cent accounts” available that often cater for the smaller lot sizes in micro lots and possible nano lots. There are also a few brokers that will allow trading with as little as 1 currency unit ($1).

Which Lot Size is Best for Forex Market Trading?

The forex lot size that works well for you is really dependent on a number of factors based on how you want to trade. Among these is how much you have to risk, and how much of your capital you actually want to risk. Once you have decided this, you will be better placed to choose the ideal lot size for you. You should also remember that you can still engage leverage when trading with smaller lot sizes, though the ratio will not increase.

Typically, as you gain more experience in the forex trading industry, your attitude  and willingness to take on slightly more risk lends itself well to increasing lot size. With this in mind then, many would recommend graduating from demo account use to a nano or micro lot size. Once you have learned the ropes with these, you can move on up to the next levels.

If you are dealing with a top forex broker, you will also note that many of them may have loyalty, active trader, or rebate programs in place. These often reward traders based on the number of standard lots they trade. Considering that then, it  may be one point to think of when choosing your forex lot size.

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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What is Hedging in Forex?

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What is Hedging in Forex?

Hedging as it applies to the forex market and trading, at its most basic form, is a strategy to protect you from losing big in a certain market position. There are many types of hedge that move from the very simple, to the more complex if you are an advanced trader, but the premise is the same. To protect your position in one currency pair by placing a trade within that same market in the opposite direction.

The Fundamentals of Hedging in Forex

The first point to note is that hedging is not always permitted by all brokers. Therefore, you should check their policy first. As mentioned, the majority of traders who engage in hedging are doing so to provide themselves with a form of protection in the event of adverse market changes. By nature, hedging is particularly common in times of market volatility when the movement is quite unpredictable.

Hedging in the forex market is also more common than in many others. This is often due to the fact that the forex market can be seen as slightly more volatile than many others that are traded. As a forex trader, there are several types of hedge that you can place to protect your position in the market.

Forex Hedging Strategies

While there are a range of hedging strategies available that vary in complexity, here we will outline some of the most common you can utilize depending on your broker policy and level of experience.

Simple Forex Hedging

This strategy is also known as direct hedging. It is one of the most widely used, and easy to understand hedging strategies. Direct hedging occurs when you open a position to buy (or go long) on one currency pair. You then open the same position to sell that currency pair (short).

There may be a number of reasons for doing this, but in any case, a few things happen. You now have two open positions in exactly the opposite direction. Although you do not make a profit on the actual hedge itself, it does allow you to keep your original position. This means you do not have to close your original position for a loss, and can instead start to make money through your short position. Maintaining the original position also means you could again profit if the market trend reverses.

Multiple Currency Hedging

Moving into one of the more complex hedging strategies. If you are trading in multiple currency pairs, then this strategy could be effective to a certain extent for you. Multiple currency hedging takes place when you but a long position, and a counteracting short position in one of those currencies.

For example, you may take a long position in the GBP/USD market, and a short position in the USD/JPY market. In this example, you are protected against your USD exposure to a high degree. This strategy though does not cover movements in the other currencies you are exposed to though. In these cases, if the JPY, or GBP were to fluctuate, you would still be exposed.

A variation of this strategy also sees traders take long and short positions in currency pairs that are positively correlated, meaning that if one currency pair goes down, the other will go up. Such an example of these positive correlated pairs may be the GBP/USD, and EUR/USD. So, if you hold a buying position in one, and selling position in the other, in theory, they should offset. Still though, this is not as exact a strategy as a simple direct hedge.

Forex Options Hedging

An option in forex is an agreement to exchange at a specific price in the future. It is a common instrument used by forex traders who wish to hedge their position. Again, this is referred to as something of an imperfect hedge since it can still result in some losses for you as a trader.

Using an example of how you may buy a forex option to hedge your risk, consider the following:

You have gone long on the EUR/USD at $1.08 expecting the pair to go higher. You are now concerned though that it may fall further on the release of economic data coming in the next few days. In order to mitigate this risk, you may but a put option with a strike price at something like $1.07 on the pair, and an expiration date of the option at some point beyond the data release.

If the pair then does go lower, the trader is paid out on their option based on the contract conditions set. If the news does not materialize, and the pair continues to go higher, then the trader can continue to hold their long position and will have only lost the premium set out in the option contract.

Who Hedges Forex and is it Worth It?

While only you as a trader can make the decision on whether hedging is worth it, the benefit of engaging one of the strategies mentioned here is that you do limit at least some of your exposure in the markets you are trading. Timed right, it can also put you in a more profitable position.

The question of who hedges in forex is more complex, but generally speaking, as long as the forex broker you are trading with allows hedging, then there is nothing to stop you from doing it. It is important that you understand why you are hedging and how you want the market to react but beyond that, almost all levels of trader can get involved with at least some of the strategies above.

Forex Hedging Fees and Costs

There are no direct fees related to forex hedging, but depending on your broker, you may have to pay a commission or spread on the market you are trading. This, as well as any other fees like a swap-fee if you are keeping the position open, are some other important things to factor into your calculations when determining if you should try hedging in forex.

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US Unemployment Rate Doubles Causing Forex Market Waves

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US Unemployment Rate Doubles Causing Forex Market Waves
  • Rate has doubled from Previous Weeks Record
  • Record High is worse than Analysts Predicted
  • EUR/USD Slides Again as Oil the Only Positive

US unemployment rate figures just released make for very grim reading. A hammer blow to start Thursday, the figures show that more than 6.6 million Americans filed for unemployment benefit amid the ongoing COVID-19 crisis. These numbers more than doubled the already unprecedented record of 3.3 million jobless claims from the previous week. The market has been somewhat slow to react to this news, but remains poised for the jobs report to be released later today.

New and Unwanted Records Being Set

Last week’s unemployment numbers of 3.3 million were far beyond the previous record high set in 1982. The number was almost 10 times greater than that set almost 40 years previous. The new weekly number from today puts that even further into the shadows. These are unprecedented times of difficulty throughout the US and global economy which show little sign of let up at present. At the time of writing, the Dow Jones was trading 150 points lower on release of the news which sees more than 10 million people in the US now filing unemployment claims in the past two weeks.

Some solace can be found in the fact that the latest $2 trillion stimulus package has made it easier for workers who have been furloughed in the crisis to remain on unemployment benefit, and also expanded the scope of those who could apply for the benefit. The previous high of 695,000 claims in 1982, and the 665,000 during the previous financial crisis of 2009 now seem miniscule by comparison.

Numbers Outpace Expert Prediction as Euro Falls

Analysts had predicted that numbers would should a marked increase. The results though, have gone far beyond even what the most pessimistic of onlookers imagined. This movement looks set to continue with more labor data to come on Friday. This government data release is set to show more huge losses across the board.

The forex market impact is already being felt as the EUR/USD market fell back below the $1.09 mark. The currency pair had worked hard over the previous week to build back up significantly, but on release of more negative data from the US, it has given way to the continually increasing safe-haven role of the greenback.

Oil Rebound Provides Glimmer of Positivity

At the opening bell, the one positive to garner from the start of the day comes from the news that the price war between Russia and Saudi Arabia may be nearing an end. Prices rallied across the oil markets more than 10% on these hopes. Nothing has been ruled out and there hasn’t been any concrete word besides an offering on Wednesday from US President Trump that the two sides would “work it out” in the coming days. This news would appear to have some truth behind it and has bolstered the market from record low levels.

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Asian Forex Market Strengthens as US Virus Cases Soar

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Asian Forex Market Strengthens as US Virus Cases Soar
  • JPY Posts Steady Gain to Start the Day
  • Other Asian Markets also boosted
  • COVID-19 Cases Increase to Make US Global Leader

Currencies and markets in Asia got Friday trading off to a positive start. Figures coming from Tokyo saw inflation easing to 0.4% for March. This, and the news that US cases of COVID-19 have now surpassed those of China, helped strengthen the JPY which has posted gains of more than 1% on the day against the US Dollar. Both the NZD, and the AUD, often traded as a proxy for the Chinese Yuan also posted increases.

This comes as confidence starts to return to the Chinese market, even though Beijing has now temporarily closed the country to all foreign visitors to prevent the spread of imported virus cases.

USD/JPY Improving From Low Point

Gains from the Japanese Yen against the USD during the Asian trading session on Friday have brought it back from a several week low point. Although the currency still remains under some strong selling pressure, this has been lightened by positive data released from Tokyo, combined with an easing of the USD safe-haven status from what it had been in the previous several days.

The JPY itself is a well-known currency that traders usually move to during times of uncertainty, though this had been rocked in recent weeks with the market turmoil present across Asia and the world. Stimulus hopes though, particularly in Japan, as PM Shinzo Abe prepped a $135 billion package for approval, have managed to thoroughly boost trader confidence. The Nikkei bounced back with a gain of almost 20,000 points Friday to reflect this.

Positive Ripple Felt Across Asia

While Japanese markets posted some of the biggest gains, there were rallies across the region. These extended to Shanghai and Hong Kong both posting positive numbers as the Asian economy looked to regain stability following a torrid period. Analysts are predicting a further push from these markets next week as they look to get ahead of US markets that are currently predicted to open lower after large gains on Wall Street yesterday.

The continuation of this positive trend will likely hinge a lot on news coming from China in the coming days and into next week as it continues to get back to work following the protracted shut down.

US Markets May be Shaken by Increased Case Numbers

With news coming today that the number of US COVID-19 cases has now overtaken that of China, traders wait to see how both the stock, and forex markets will respond. Traders were not deterred by huge unemployment numbers posted yesterday, but experts are predicting a slowdown to end the week with markets projected to open lower.

This comes after a significant rally saw the S&P 500 climb more than 6% yesterday. This could also prompt a further move away from the USD as traders look to other options for safety.

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Asian Forex Market Strengthens as US Virus Cases Soar
- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

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Asian Forex Market Strengthens as US Virus Cases Soar
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index

 

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- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index