Although five hundred dollars is a tiny amount in the trading world, most retail traders lack trading money when they deposit for the very first time. And without proper knowledge on “LOT” they could loss their first investment, so i want to discuss detail about best lot size for $500
Lot is an important term in the foreign exchange market. In a forex trading journey, you need to undergo “Lot”. If you don’t have a clear idea over position sizing, when the forex market moves a little or any major news like NFP or FOMC happens your account will be blown out .
Why we choose 4% risk in every trade and what lot size is best lot size for $500
Don’t make the same mistakes again and again. Ask yourself why 90% traders lose money in forex and why only 10% traders make a way to gain profit in this market? Because of proper lot sizing. If you use more than 0.02 volume in your trade investing just 500 dollar then you are doing nothing but gamble! Yes, you hear it right. 0.02 lot size is the best lot size for $500
Suppose you open a forex account with any top-rated forex broker and deposit 500 USD, Which means your base currency is US Dollar. Then you buy a currency pair EUR/USD ( where euro is base currency and USD is quote currency ). As per our trading rules, we will risk only 4%
Here,($500✕4%)= $20
If your EUR/USD buy trade falls 100 pips then you will lose 20 dollars, Suppose you lost $20, then what happens? Does it affect your trading? No. Because you still have $500-$20=$480 to open more positions.
Now the irony is that most of the time, retail traders get greedy and open a big volume like 0.10, just investing 500 dollars! They wish to get rich quickly with a tiny amount. But the forex market is not a quick rich game.
For say, you open 0.10 volume trade, then if you lost in a single trade, you lost 100 pips or $100. After making such a huge loss, you get disappointed and confused. Then you will start searching setups when there is none.. Which results in more loss, and you will empty your trading account within a week.
Standard lot size,Mini lot,Micro lot,Nano lot details
- 100,000 units of currency is a standard lot. Most experienced forex traders, hedge funds, institutions use this lot size.This is the highest form of lot size . If you are new at forex then don’t use this kind of lot.
If current EUR/USD price is 1.1205,
Pip value in standard lot = (0.0001➗1.1205)✖ 100,000
=8.92 EURO
That means paying 10 USD we will get 8.92 EURO
2. Mini lot is smaller than standard lot .Mini lot speaks for 10,000 units of currency.Mid level professionals use mini lot size.
If current EUR/USD price is 1.1205,
Pip value in mini lot = (0.0001➗1.1205)✖ 10,000
=0.89 EURO
That means paying 1 USD we will get 0.89 EURO
3. 1,000 units of currency comprises micro lot.This type of lot is the best choice for new traders. I suggest every newcomer to foreign markets to start with a micro lot.
If current EUR/USD price is 1.1205,
Pip value in micro lot = (0.0001➗1.1205)✖ 1,000
=0.089 EURO
That means paying 0.1 USD we will get 0.089 EURO
4. Nano lot or minimum lot size ( 100)
The smallest lot among the four is nano lot which comprises 100 currency units. Although I personally don’t suggest using this kind of lot size.
If current EUR/USD price is 1.1205,
Pip value in nano lot = (0.0001➗1.1205)✖ 100
=0.0089 EURO
That means paying 0.01 USD we will get 0.0089 EURO
see,it will be easy for you to calculate dollars according to your lot size. If I ask you, what is 0.01 lot size in dollars? Or 0.1 lot size in dollars Don’t you think that the calculations are an easy process? The answer you will get above. Just calculate pips value according to the lot. That’s it
Best lot size for $500 based system
This strategy works best on a 4-hour time frame. And we use the RSI indicator here. The value of RSI would be 60,40. We only trade major and minor pairs under this strategy. We won’t take exotic pairs or local pairs.
When to buy:
When the price remains above the 60 RSI level, then wait. If we find a bullish candle, then 1 or 2 small candles (bearish or bullish ), we will wait for the next robust bullish candle, which is our trade confirmation candle. If our trade confirmation candle engulfed the previous candle or candles, then we will open buy trade. Are you getting confused? Don’t worry, just check out the chart below. Your confusion will be eradicated.
See; first, we get a bullish candle which is very handsome, so check out. Then we find three tiny candles. One of them is bearish, and 2 of them are bullish. Just look at how small they are!
Yammy! Now what? Now we will wait for our confirmation candle. At the next candle, we get a strong bullish candle that engulfs all the previous candles smartly. Check out the RSI, which is above the 60 levels. If you get such a scenario, then don’t wait. Just open a buy order. Yes, we opened a buy order here, and our trade gives profits.
Stop-loss : your stop level will be below the first bullish candle. We are placing 0.02 volume, so we are not risking more than 100 pips.
Take profit: we will use 1:1 risk reward .
When to sell:
If price goes above 60 RSI level, then wait for the next candles. If we find a bearish candle, then 1 or 2 small candles (bearish or bullish ), we will wait for the next healthy bearish candle, which is our trade confirmation candle. If our trade confirmation candle engulfed the previous candle or candles, then we will open a sell trade.
See; first, we get a bearish candle which is very handsome, so check out. Then we found four small candles. Two of them are bearish, and 2 of them are bullish. Just look at how tiny they are!
Voila! Now what? Now we will wait for our confirmation candle. At the next candle, we get a strong bearish candle that engulfs all the previous candles smartly. Check out the RSI, which is below the 40 levels. If you get such a scenario, then don’t wait. Just open a sell order. Yes, we opened a sell order here, and our trade gives profits.
Risk management system: your stop level will be below the first bullish candle. We are placing 0.02 volume, so we are not risking more than 100 pips.
Take profit: we will use 1:1 risk reward
Do you know risking 4% per trade is safer than risking 1 %
Don’t get confused just reading the headline. Remember, each and every strategy is unique and different. If you apply the strategy I mentioned above, then your winning percentage, your draw down, winning streak, losing streak all the data will be different. As this RSI-Engulfing bar strategy is a winning strategy, if you risk 1% on each trade, your counted profit will be a tiny amount.
When you get that tiny amount, you will get frustrated. When you get frustrated, then greed will work on you, and you will want more. You will want more trade, and whether there are trades or not, you will see trades. You will find setups here and there. Thus you will place many wrong trades. And eventually, you will end your trading week, making a loss.
But if you risk 4% on each trade with this winning strategy, then your profit amount will be substantial, and you will be happy to calculate your profit at the end of the week. When you get enough profit, then you will not focus on placing more random trades or bad trades.
So we conclude that 4% risk is safer than 1% risk only if you apply it to a winning strategy like this one.
Correlation between position size and leverage
There is a close connection between forex lot size and leverage. The funds that you borrow from your regulated broker is called Leverage .If you take high leverage, then you can open big volume trade even depositing small capital. Leveraged trading is risky when you don’t have a clear concept regarding it. That’s why professional traders don’t recommend higher leverage.
Whereas the lot is the contract that is measured in base currency units. Here, I write about the best lot size for 500, so I showed why 0.02 lot size would be the fitting position size under 1:500 leverage.
The best lot size for $1000 vs. best lot size for $100
If you have more money, like if you deposit 1000 dollars, then don’t trade on 0.02 lot size. For 1000 dollars, you need to increase your lot size. All the conditions will remain the same, like risk percentage and other things. but here, your lot size would be 0.05, and your leverage should be 1:400
As I don’t know about each and everyone’s financial conditions, who are reading my blog if there are any traders who don’t have the ability to invest amounts like 500 dollars or 1000 dollars. Rather you wish to invest just 100 dollars. And I want to trade with this tiny amount. Then you should use 0.01 lot size. Don’t use more than this. Although I don’t recommend this type of tiny amount to invest in forex.
Online vs. offline lot size calculator
Many traders search for position size calculators to calculate their pips easily. If you wish to calculate your position size online, then babypips forex lot size calculator mt4 would be best. But if you are looking for something offline like forex lot size calculator excels, then just download it and use it. I made it for the best lot size for $500 excel sheet. But you can use it for any amount. Just modify the yellow boxes there.
Conclusion
AS I discussed here, the best lot size for $500, so If your balance is more like $1000, $5000 or less like $200,$100, then go for some other article written by me on this website.
Remember, even if you can trade 100 volumes, what is the highest lot size in forex trading even in a single trade, but does that mean you will make a profit? NO. Only big volume doesn’t mean big profit. You need to calculate your lot size according to your balance. You need to enrich yourself both with the knowledge of technical analysis and fundamental analysis. Then you should open a demo account and practice on it. When you feel confident enough, only then invest real money and enjoy profit! Voila!
FAQs
1)What lot size to use in forex or which lot size to use
It’s up to you. Your account balance should define your lot size. Like if your trading capital is $1000, then your lot size should be 0.05. And if your capital is $500, then you should use 0.02 volume.
2)Is lot size important
Yes, lot size is very important in forex trading. If you use lot size inappropriately, then you could make a huge loss even with a small movement of the market. For large capital, use a standard lot. For moderate capital, use a mini lot. For small capital, use a micro lot. But don’t use Nano lot. Using nano lot in forex trading is of no use.
3)What is 1 lot size
1 lot size is a mini lot size. Roughly when you use 1 lot size in forex trading, that means per pips value is ten dollars.
4)Which lot size is better for beginners
For beginners, 0.05 lot size is ideal. 0.05 is micro lot size. Bigger than this would be lethal. If you want to use a bigger lot like 0.1, then first make a consistent profit under 0.05 lot for six months successively. After that, you may switch to a mini lot or, more precisely, 0.1 lot
