To put it plainly and simply, foreign exchange trading involves the acquisition of one currency while concurrently selling another currency. These currencies are referred to as the currency pair and these are required in order to participate in the trade. Usually, the size of every pair of currencies is at or around 100 thousand units. This amount is known as the size of a standard lot. Do you know that you can protect your forex corporate account using mini lots?
So, what is a mini-lot? Basically, many people find a standard lot too large. One hundred thousand units are quite difficult to own for beginners. Thus, another option was given by foreign exchange brokers. Most of them have introduced mini-lots which comprise 10 thousand units only. For any beginning trader, a mini-lot can help in protecting his or her forex corporate account from suddenly closing down just because of making the wrong choices. This way, he or she is only exposing the account to a calculated amount of risk.
The benefits brought about by the mini-lots may not be clear at this point. In order to attain a deeper understanding of this matter, the concept of the pip should also be clear. The pip usually pertains to the minimum change or increment through which the pair of currencies can move. It usually refers to the smallest decimal value through which the account can move. For example, if you are dealing with EUR/USD in you forex corporate account which is initially quoted at 1.5555 and it moves after a while to 1.5556, then it can be said that there has been an increase or elevation of 1 pip. Further connecting, the value of 1 pip can be used to determine the actual value of your trade. For example, for the given example, given that you are dealing with a standard lot of 100 thousand EUR/USD, then at a 1-pip upward motion, your trade’s value has actually improved by $10. Here is the equation: (standard lot size x # of pips).
However, if you are not yet ready to deal with a standard lot, you can resort to using the mini-lots instead. For the same pip adjustment (1-pip), considering that you have a mini-lot, by how much has your trade improved? To answer the question, let us use the following equation: (mini-lot size x # of pips) = (10,000 x 1 pip) = (10,000 x 0.0001) = $1. This means that at that the overall value of your trade has improved by a single dollar.
By using the mini-lots instead of the standard lot, you are doing yourself a favor by not risking too much from your forex corporate account. As a trader, you are the only person to set the level of risk that is acceptable or bearable. You are the only person who can dictate what percentage of your capital or amount contained by your account you can actually risk.
At the end of the day, managing the risks that you forex corporate account is the key to success. And yes, using the mini-lots concept is one of the best ideas that you can probably employ.