Each Forex trade is placed by selecting the number of lots you would like to control. There is a common misconception out there with new Forex traders; that trade size is only dependent on the amount of lots that the trader selects. This is simply not true.
To understand the true size of your positions, you have to consider the notional value of the position created. How much actual currency did we purchase? What does trading 10k actually mean? We need to look closer at the actual transaction to see how the trade breaks down. Trade Size Depends on Currency Pair. Sign up for my email list to receive my latest articles and videos. How much actual currency did we purchase now? This is an important lesson to understand because it can make a big difference in how you manage your overall account.
For example, if you wanted to spread your money out evenly across multiple positions on multiple pairs, you would not want to simply trade the same lot size, you would want to take into account the notional trade size you are taking on.
As a side note, this is also why margin requirements vary from pair to pair. Notional Value Affects Margin Requirements. Now that you understand the notional value of your trades, you can select smarter trade sizes. Maybe your GBP positions are too large. Maybe your NZD positions are too small. Either way, you should now have a greater understanding in how currency pairs partially determine the size of your positions and not simply the number of lots.
The Importance of Stops 44 of How to Determine Appropriate Effective Leverage. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Click here to dismiss. Consider the following examples to understand how this works: Foundations of Technical Analysis: Classic Chart Patterns, Part I. Upcoming Events Economic Event. Forex Economic Calendar A:More...