Micro Lot

What Is a Micro Lot?

A micro parcel addresses 1,000 units of the base currency in a forex trade. The base currency is the main currency in a pair or the currency that one buys or sells. Trading in micro-parts empowers retail traders to trade in similarly small augmentations.

Forex traders can likewise trade in mini lots and standard lots.

Grasping the Micro Lot

At the point when an investor places an order for a micro part, this means they have placed an order for 1,000 units of the currency being bought or sold. For instance, in the EUR/USD (euro versus the U.S. dollar) currency pair, the euro is the base currency and the trader either buys or sells 1,000 euros.

A micro part is commonly the smallest block of currency a forex trader can trade, and is utilized by fledgling traders hoping to begin trading however who need to reduce the possible downside. While generally rare, some forex brokers offer nano parts, which are 100 units of the base currency.

Investors utilize micro parts when they don't really want to trade mini or standard parcels. Ten micro-parcels equivalent one mini part (10,000 units), and 10 mini parcels equivalent one standard part, which is 100,000 units of the base currency.

Trading in micro-parcels doesn't have to confine the trader. They can trade as small or as large as they need. They can trade one micro parcel, or they can trade 1,000 micro-parts, which is equivalent to a million units (10 standard loads) of currency. Micro parts take into consideration a fine-tuned customization of position sizes, for example, 125 micro-parcels, which is equivalent to 12.5 mini parcels. In the event that the trader could trade mini parts, they would have to select 12 or 13 mini parcels, which isn't so fine-tuned as 125 micro-parts.

Most retail brokerage accounts permit traders to trade micro-parts with generally small start deposits, for example, $100 or $500.

Nano parts are even smaller, at one-10th the size of a micro parcel. One pip of a currency pair based in U.S. dollars is equivalent to just $0.01 while trading a nano part.

Part Sizes Differences

The smaller unit size permits traders to better control their risk. For instance, a one pip move in the EUR/USD with a standard part results in a $10 profit or loss for the trader. In the event that the trader just has $500 in their account (requires 200:1 leverage), a 5 pip move against them — which can occur like a flash — means they are losing 10% of their account.

With a mini parcel (requires 20:1 leverage), every one pip move in the EUR/USD results in a $1 profit or loss. The price would have to move 50 pips for the account to lose 10% of the account. At last, with a micro parcel (requires 2:1 leverage), each pip of movement in the EUR/USD is worth $0.10. For the trader to lose 10% of their account on a trade, the price would have to move 500 pips against them.

These models show that the smaller unit size of the micro part is very beneficial to traders with smaller accounts since it considers greater flexibility in terms of trades taken, and furthermore the potential for reduced leverage, which reduces the risk of losing more money than what is in the account.

On a $500 account, it just takes roughly 2:1 leverage to buy or sell a 1,000 unit micro parcel. Buying a standard part with a $500 account means roughly 200:1 leverage, and a mear 50 pip move could clear out the whole account. Forex leverage is capped at 50:1 in the U.S. also, in numerous countries around the world.

Ideal Position Sizing Using a Micro Lot

Forex traders frequently utilize micro parts to keep their position sizes smaller to fine-tune risk on a small account.

Expect that a trader needs to buy the [GBP/USD](/gbp-usd-english pound-us-dollar-currency-pair) at 1.2250, and place a stop loss at 1.2200. They are risking 50 pips. They have a $1,000 account and will risk 2% of it, or $20.

To find the ideal position size, in micro-parcels, the values can be connected to the accompanying formula:

Dollars to risk/(risk in pips x micro part pip value) = micro parcel position size

$20/($50 x $0.10) = 4 micro parcels

The ideal position size for the 50 pip stop loss, with the trader being willing to risk $20 on the trade, is four micro-parcels. Working backward, assuming that the trader buys four micro-parts, and every one pip move is worth $0.40 ($0.10 x 4 micro parcels), in the event that the trader loses 50 pips on four micro-parts they will lose $20.

The formula can be adjusted to mini parts by contributing the mini parcel pip value, or standard parts by contributing the standard parcel pip value. Note that pips values might differ based on the currency pair being traded.

Features

• A micro part takes into consideration smaller positions or potentially greater fine-tuning of position sizes than a mini or standard parcel.
• Other parcel sizes incorporate nano parts (100 units), mini parcels (10,000 units), and standard parcels (100,000 units).
• A micro part in forex trading is 1,000 units of the base currency in a currency pair.