What is a LOT

There are several types of lots available to trade that are classified according to size.

These lot sizes are defined in generic unit terms because the specific currency represented by the units depends on which currency pair is traded. For example, if a standard lot of EUR/USD is traded, it would be 100,000 euros. In contrast, if it was a standard lot of AUD/JPY, the lot size would be 100,000 Australian dollars.
 
It is vitally important that a trader chooses a lot size that is appropriate to that trader’s account size and risk tolerance. The lot size chosen by the trader affects virtually all other aspects of trading. This is because of the massive amount of leverage available in foreign exchange trading which therefore can be viewed as a double edged sword.
 
Due to leverage in Forex a small amount of funds controls a significantly larger amount of funds and therefore can certainly serve to magnify profit potential. But on the other hand, the amount of risk inherent in highly leveraged trading like this is equally magnified.
 
Therefore, it is advisable to use caution when trading with the substantial leverage common in Forex trading. Highly leveraged trading is aggressive trading that is characterized by both high risk and high potential reward and potential new Forex traders should be aware of the above points.
 
 

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