Broker to Trading

The brokers in this table offer trading accounts which allow a minimum trade size of at least 0.01 standard Forex lots, also known as micro lots. Forex is traded in lots, which is the unit of an order size and therefore determines the cost of the order. 1 Forex standard lot has a value of 100,000 units of a currency. If the trader trades on leverage they can control an order size with less capital, i.e. one standard lot will cost less than 100,000 to trade, however increasing leverage increases risk.

The high value of lots is why leverage offered is higher for Forex than other markets. A reason standard lot size have a high value is because Forex is traded in the primary Interbank market at very large volumes between banks and other participants, it is not traded on an exchange. The order size units reflects this. In the Interbank market itself, a lot is 1,000,000 units and some ECN brokers use this value for a Forex lot.

The size of a lot determines how much each move in pips is worth. A pip is the unit for a move in value on a chart (a Forex broker may show fractional units as well). Using a USD example on this page where one lot is $10 per pip, a 30 pip move is $300 (the actual value of a pip per lot can vary depending on the account currency and the Forex pair).

To control even one lot will need significant capital in the trader's account firstly to open the position and secondly to withstand adverse moves against the position. A 30 pip move which can happen sometimes rapidly in the Forex market would have a pip cost of $300 for a one lot position, in the example used. The trader can trade multiple lot sizes up to any maximum set by the broker, but thereby increasing exposure to adverse moves.

One way of controlling a lot with a smaller accounts sizes is to use higher leverage. However this increases risk, including being automatically stopped out if the value of the account reaches a preset minimum, called the stop out level. This is in addition to any stop-loss set the trader. A one lot trade can eat up the value of an account (which is also a reason for setting a stop-loss for any trade). Thus the relative value of the account size to the order size is a factor in trading.

Another way to trade with smaller account sizes is to trade with smaller lot sizes. A mini lot (0.1 lots) has a value of $1 per pip and a micro lot (0.01 lots) has a value of 0.10 cents per pip. It is possible to go even smaller (0.001 lots) and trade on accounts at some brokers where the value of a pip is 1 cent or less. The term cent account is used because the account is denominated in cents, thus 1 lot = $1,000. In this account, 0.1 lots has a pip value of 1 cent, but it is 0.001 standard lots.

In the European Economic Area (EEA) maximum leverage for Forex is set at 30:1. The stop out level is set at 50% of the account value. This means that larger sums are needed to trade the same order size, assuming the trader used leverage higher than 30:1 before the maximum leverage was reduced. Setting the stop out at 50% means that an adverse move requires more capital in the account, assuming the stop out set by the broker was lower, if the trader did not set a stop-loss. Thus smaller account sizes, depending on the size, may need to use micro lot accounts. For larger accounts, smaller lot sizes can be a way of reducing leverage.

Plenty of Forex brokers offer micro lot accounts and a selection of these is included in the comparison table on this page. A trader can still trade larger order sizes on a micro account and in fact at many brokers a micro account is simply the minimum trade size for their accounts. Some account types at some brokers which require a high minimum deposit and thus assume larger traded volumes, may have a higher minimum lot size.

Even if a trader has to use micro lots, is there an advantage to using them ? Apart from increasing trading comfort levels and potentially reducing risk, starting with small trade sizes can be a way of getting to grips with trading Forex pairs. With a smaller trade size, the trader can understand the complex ways pairs move, retracing in the opposite direction of any move, experiencing volatile periods, trends and ranges. With a smaller trade size, the cost of adverse moves is reduced. As the trader becomes more experienced, they may scale up lot sizes, using their knowledge of the Forex market gathered from trading with smaller lot sizes.

The trader will discover that the Forex market does not tend to move in one direction, without retracing in the opposite direction. They may learn that even at the moment of a major news release, a Forex pair may not behave as expected, perhaps oscillating or moving in the opposite direction, or even moving in the expected direction then sharply reversing. With a smaller lot sizes the trader can reduce their exposure to adverse moves against the traded direction.

For beginner traders, smaller lot sizes can be a way of trading in the live market, without risking a large amount of capital. However a live account still risks capital and the trader may wish to trade on a demo trading account, without risking any capital. A demo account uses virtual money which can only be used in the demo account and cannot be withdrawn.

The demo account may be of a higher virtual value than the actual value of the real account the trader will use and as can be seen, the value of the account helps determine how the trader may trade since it sets the limits or ranges for position sizes. The results a trader may experience in a demo account may not be repeated when they trade in a live account.

To open a position in a live account, the trader needs to deposit a minimum amount, but this needs to be enough to take account of the amount required to trade a particular Forex pair, which as this article has discussed is more than simply enough to cover the cost of the pair, but also enough to deal with adverse moves against a traded position, in a comfortable and flexible manner consistent with the experience of the trader.