# Complete Guide to Forex Lot Size and Leverage

When leverage trading the Forex market it is important to understand the difference between lot size and leverage to be able to choose the correct position size.

In Forex, lot size refers to the position size while leverage acts as a multiplier that can increase the lot size.

Professional traders have mastered the selection process of lot size vs leverage which gives them an edge when trading the Forex market.

In this article, we will take a closer look at the differences, how to choose lot size and leverage, some examples, and some best practices.

**Key takeaways**

**Lot size in Forex refers to the volume of currency units in a trade, while leverage acts as a multiplier of your deposited trading capital, allowing you to control larger positions with less capital.****Lot size and leverage are two distinct concepts that play different roles in determining the size of a trading position and the level of risk involved.****Choosing leverage and lot size requires careful consideration of risk tolerance, understanding of the underlying market, trading strategy, stop-loss level, and margin requirement.**

**Table of content**

**Lot size vs leverage in forex****What is lot size in forex?****Does leverage increase lot size and pip value?****How to choose lot size and leverage****Things to consider****Examples of different trades****How to calculate lot size****Best practices for lot size and leverage****FAQ****Final words****Also read these articles**

## Lot size vs leverage in Forex explained

**The difference between forex lot size and leverage is that lot size is a standardized quantity of currency units in a single trade and leverage is a multiplier of your margin requirement.**

Lot size and leverage are two distinct concepts in forex trading that play different roles when it comes to determining the size of the position.

In essence, with leverage you can trade larger lot sizes in forex with less capital since the leverage multiplies your own money allowing you to open bigger positions.

The lot size has a direct impact on the trade size whereas a micro lot is worth less than a standard lot.

Leverage on the other hand directly impacts your trading capital and increases the deposited amount depending on how much leverage you choose.

With increased leverage, you can afford to trade a larger lot size in forex.

### What is a lot and lot size in forex?

The lot size refers to the volume of any single trade in Forex where brokers offer different lot size options.

The different lot sizes in Forex are:

- Standard lot: 100,000 units of the base currency
- Mini lot: 10,000 units of the base currency
- Micro lot 1,000 units of the base currency
- Nano lot 100 units of the base currency

A standard lot size of $100,000 in the EUR/USD forex pair means that the pip value is $10.

A mini lot size of $10,000 has a pip value of $1.

A micro lot size of $1000 has a pop value of $0,10.

A nano lot size of $100 has a pip value of $0,01.

### Does leverage increase lot size and pip value?

Yes, leverage does increase lot size because with you can contorl more money and therefore trade with a larger lot size.

Let’s say that you have $5000 in your account and you choose a leverage ratio of 1:100 then you will have $500,000, or 5 lots.

At a lot size of 5, the pip value is $50.

If you trade forex without leverage, $5000 is only 5 micro lots where the pip value is worth $0,50.

Now, let’s assume you have $1000 in your account and you use a 1:10 leverage, then you reach the mini lot size at $10,000.

With a mini lot, each pip is worth $1.

Now should you use 1:150 leverage with your $1000 you would have $150,000 which is 1,5 lots.

This is how leverage increases the lot size depending on what leverage you choose for a small account.

### How to choose lot size and leverage

When professional traders choose lot size and leverage, these are the factors they consider first:

- Risk tolerance: Before choosing lot size and leverage you always want to assess your risk tolerance. How much money are you willing to lose on each trade and how much does that translate into pip value? Can you trade a standard lot or is it better to trade a mini lot based on you risk assessment?
- Underlying market: What market are you currently trading? Is there any news reports coming out soon that could possibly throw off the market for you. Is the forex pair you are trading volatile and less liquid or is it moving slower with higher liquidity?
- Trading strategy: What high leverage trading strategy are you going to use? Are you a break-out trader or are you waiting to catch mean reversion trades? Depending on what setup you are trading, you can afford to choose a higher or lower lot size with leverage in Forex.
- Stop loss level: If your stop loss distance is very far away you might need to choose a smaller lot size to reduce your risk and this can be done by lowering the leverage. If your stop loss level is very tight, choose a higher leverage ratio to take advantage of this skewed opportunity. Our stop loss calculator will help you calculate the perfect distance to your stop loss if you are not sure how to do it on your own.
- Margin requirements: How much money are you going to deposit in your account? This matters because overlevering your account with a small amount of money can be very risky. For example, the best leverage for a $200 account size is rarely more than 250 since the risk will be to much to handle.

All these factors come in to play when choosing the perfect lot size and leverage for your trade.

Professional traders study their market, setup, and account size before choosing lot size and choosing the best leverage for Forex.

### Things to consider when choosing leverage and lot size

The most important things to consider when choosing which lot size to trade with and how much leverage to add are:

- Total loss
- Maximum profit
- Margin call and liquidation risks

In regards to loss, when leverage trading Forex you need to understand how leverage trading affects losses before jumping into the markets with your own money.

When trading with high leverage you can lose more money than you have invested unless the broker you trade with has negative balance protection.

A higher leverage ratio increases the risk for loss and adding too much buying power to your Forex trade could end badly.

Now, on the other hand, profits are increased when trading with leverage and this is one of the biggest benefits of trading the Forex markets.

Many traders have grown a small account size into hundreds of thousands of dollars with skill and practice.

The major risk factors to your account as you choose lot size and leverage are the margin call risk and liquidation risk.

A margin call is a warning signal from your broker that you receive when your margin requirement has fallen below the minimum level.

If you don’t do anything when receiving the margin call and the market keeps going against you, your account might reach the point of liquidation.

Take these things into consideration when choosing between leverage vs lot size.

### Examples of trades with different lot sizes and leverage in Forex

Let’s look at some examples of trades in the Forex market with different lot sizes and leverage ratios. For these examples, we’ll assume that you are trading with a balance of $10,000.

Example 1: Low leverage and standard lot size

- Leverage: 1:10
- Lot Size: 1 Standard Lot = 100,000 units

In this example, the trader is using low leverage and a standard lot size to execute a trade on the EUR/USD currency pair at an exchange rate of 1.2000.

Trade: Buy 1 standard lot in EUR/USD at 1.2000

- Trade size: 100,000 EUR
- Margin required (1%): 100,000 EUR * 1.2000 / 10 = $12,000 (using 1% of the trade size as margin)
- Pip value: $10 (approximate, assuming USD as the account currency)
- Risk per pip: $10 (with a stop-loss of 100 pips, the potential loss is $10 * 100 = $1,000)

Example 2: Moderate leverage and mini lot size

- Leverage: 1:50
- Lot size: 1 Mini lot = 10,000 units

Trade: Sell 1 mini lot in USD/JPY at 110.50

- Trade size: 10,000 USD
- Margin required (2%): 10,000 USD / 50 = $200 (using 2% of the trade size as margin)
- Pip value: $1 (approximate, assuming USD as the account currency)
- Risk per pip: $1 (with a stop-loss of 50 pips, the potential loss is $1 * 50 = $50)

Example 3: High leverage and micro lot size

- Leverage: 1:200
- Lot size: 1 Micro lot = 1,000 units

Trade: Buy 1 Micro lot in GBP/CHF at 1.3000

- Trade size: 1,000 GBP
- Margin required (0.5%): 1,000 GBP / 200 = $5 (using 0.5% of the trade size as margin)
- Pip value: $0.10 (approximate, assuming USD as the account currency and GBP/USD exchange rate at 1.3000)
- Risk per pip: $0.10 (with a stop-loss of 30 pips, the potential loss is $0.10 * 30 = $3)

You can use these examples as a stepping stone when choosing leverage and lot size for your own trades.

The thing that has been exempted from this calculation is the leverage trading fee that is added when using more buying power.

### How to calculate leverage and lot size

There are two ways to calculate your lot size and how to calculate leverage in Forex and that’s either manually or with a Forex leverage calculator.

First, you should calculate the leverage which works like this:

Leverage = Total position size/trading capital

For example, if your total position size is $100,000 (1 standard lot) and your trading capital is $1000, then you need to add 1:100 leverage to be able to open that leverage position.

Now, when calculating the lot size, there are some added factors that will decide your lot size.

a. First you need to calculate how much you are willing to risk per trade in percentage. We are going to assume that you want to risk 2% per trade of your $10,000 account:

Risk = 2% of $10,000 = 0.02 * $10,000 = $200

b. Determine the number of pips for your stop-loss. For example, if you set a stop-loss at 50 pips:

Stop-loss in Pips = 50 pips

c. Find the pip value of the currency pair you are trading. The pip value depends on the currency pair and the account currency. For most major currency pairs and a USD-denominated account, a standard lot pip value is approximately $10.

d. Now, calculate the lot size using the formula:

Lot size = ($200 / (50 pips * $10)) * (1 standard lot)

Lot size = ($200 / $500) * 100,000

Lot size = 0.4 * 100,000

Lot size = 40,000 units (or 0.4 standard lot)

So, the calculated lot size for this trade is 0.4 of a standard lot (40,000 units).

### Best practices for lot size and leverage

Before you add leverage to increase your lot size there are some best practices to be aware of.

Most professional forex traders abide by these rules without thinking of it since they have been doing it for such as long time.

Therefore it’s worth learning them as a beginner.

- Start with a demo account
- Gradually increase leverage
- Avoid over-leveraging
- Adjust lot size based on daily volatility
- Diversify your trades
- Keep a trading journal

By following these rules you will make fewer mistakes and could possibly lose less.

My personal favorite as a professional trader is to start with a Forex demo account to feel how the market is behaving and how much strategies work.

However, it’s worth mentioning that Forex trading comes with inherent risks and when a high leverage ratio is added the risks are multiplied.

### FAQ

**Does leverage increase lot size?**

Yes, leverage increases lot size in a linear way. For example, if you choose 1:10 leverage, your position size is increased 10 times.

**How much leverage is 0.01 lot size?**

Leverage and lot size is not the same thing. However, you can reach a 0.01 lot size by using leverage when trading Forex.

**Is leverage the same as lot size?**

No, leverage is not the same as lot size. The main difference is that lot size is the quantity of units for a Forex trade and leverage is the multiplier of your own trading capital.

**What is the maximum lot size for 1 100 leverage?**

This depends on how much of your own capital you are going to deposit into your trading account. For example, if you deposit $1000 and use 1:100 leverage, your maximum lot size will be a 1 standard lot.

### Conclusion

Understanding the concept of lot size and leverage is essential for any Forex trader who is trying to succeed with a smaller account.

Lot size represents the quantity of units while leverage is the multiplier of your own account capital.

Some of the best practices to follow before choosing lot size are risk management techniques, assessing the market volatility, choosing a trading strategy, and calculating your leverage.

By starting with a demo account in Forex, you can practice all these things without running the risk of losing your own money, which is highly recommended by professional traders.

Finding the right balance between lot size and leverage is what is going to set you apart from the rest when trading the Forex markets and this guide is a great way to get started.