Unless you go to a farmer at a farmer’s market who is willing to sell just one egg, you are limited at the store in how many eggs you have to buy. Even if you only want to buy one egg you have three choices. You can buy half a dozen, a dozen, or 18 dozen. If you shop at a warehouse you may have only one choice of two dozen. In foreign exchange you are limited to how you can buy or sell currency pairs. You would not want to buy just 1 euro, 1 USD, or 1 JPY. It does not make sense since the profit would be nothing. It is why you have lot sizes you have to buy in. Unfortunately, buying or selling in lot sizes can also create an issue with the amount of money you have. The following takes a look at this situation.
Foreign Exchange Lot Sizes from Dealers
Dealers or brokers determine the lot sizes they deal in. Some brokers will not provide a choice. Other brokers have three choices you can buy or sell in. Lot sizes for foreign exchange are in even units.
· Micro= 1,000 units or 1,000 in one currency
· Mini= 10,000 units
· Standard= 100,000
You may find a broker willing to deal in 1 mil units too. Since this is an Australian site consider 1,000 units as $1,000 AUD, thus 10,000 units is $10,000 Aussie dollars.
A single lot size in foreign exchange is also considered 1 contract. If you have 3 contracts you have 3 of a lot size. If you decide you want 3 contracts of $1,000 AUD that would be $3,000 AUD as your investment.
Now you are thinking you only have a micro account with $250 AUD as the deposit. It does not make even one lot size. It makes you wonder how anyone can trade in the forex market when the average trader has such a small deposit amount in their account. This is where margin trading comes in.
Foreign Exchange Margin Trading is an Extension
Margin trading is based on leverage. Leverage is the vocabulary word assigned to the borrowing of enough capital to place an order. You might have $250 in your account; however, with leverage you could trade 3 contracts of $100K AUD in foreign exchange.
An example will be examined in a different article, but for now understand that margin trading is a percentage of the capital you have in your account. You can trade with a certain percentage to cover your actual investment in the market. You might decide to trade 1,000 units at 2 per cent margin. You could even trade 100K with a 2 per cent margin with nothing more than $25 as the account deposit.
Leverage is one of the major benefits to foreign exchange since you could make $500 with only $25 in your account. Since it is a difficult concept it will need a full explanation and example so seek out more details before you consider using leverage as it can be dangerous.
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