Understanding Lots and Its Relation to Forex
Nowadays there are a lot of investors which are doing business with the Forex market. If you plan to enter or you are a beginner in Forex trading there is some information you need to understand which will help you to know the ins and outs of the trade. In addition, Forex trading is a risky business and if you do not fully understand the necessary precautions or you do not have proper planning and deciding on an effective forecast of breaking news that might affect the pricing of the trade, you can lose money. Understanding this, you can be assured of protecting your investment and have a higher possibility of gaining profit from your investment.
Basically, Forex earnings are called Price Interest Point or simply “pips” or sometimes called points. $.01 is the smallest denomination in Currency Exchange. You can also trade as small as $0.0001 denomination. With this scheme, even with small movements of currency prices there are possibilities that you can earn larger profits. Standard accounts in trading a pip is equal to 10 US Dollar compared to a mini account with a pip which is worth 1 US Dollar. Therefore, the value of pip depends on the size of the account you are using in trading.
As part of Forex trading, you must also understand what are Forex lots and mini lots. You must know the definition and difference between the two. For your information, the term lot is the standard unit used for a transaction. Usually, standard lot is equivalent to 100,000 units of the base currency. This means 10,000 units if it is a mini lot and 1,000 units if it is in micro lot. In most cases, in standard Forex, lot is equal to 100 US Dollar and so the standard leverage for the particular lot is in the margin of 100 to 1 .
The difference between the two is that the mini lot is almost the same with the regular lot and on differs with its size. Now you have the basic understanding of the Forex lots and mini lots which you can now set the lot when investing with Forex trading.
For example, if you buy 6 lots you know that it is worth $6,000. You can usually see the information for the lot and mini lot at the Forex quotes. In this way you will know how much money you want to invest and decide whether you are going to sell or buy Forex currency.
Forex trading has a lot of complex terms and procedures but as long as you have the basic understanding and knowledge of the procedures of how these are traded, you can be confident to invest in the Forex market. Forex trading can be a profitable business where you can invest and earn.