Trading Lot is the key to risk management: Beginners must understand this well

When starting to trade Forex, many people fall into the same trap: they set their Lot size based on courage and hope, not numbers and plans. The result is a blown-out portfolio. This misconception can save a lot of time and money.

The Real Issue Hidden in the Forex Market

In the currency exchange market, price movements are minimal. If you trade just 1 unit of currency, the price might move 1 Pip (Percentage in Point), which is 0.0001, yielding only $0.0001. Even a 100 Pip move results in a profit of just $0.01.

To address this, the market creates a standard unit called Lot. It’s like buying eggs by the tray instead of a single egg.

What is a Lot and How Many Baht is 1 Lot?

Lot is a contract size (Contract Size) indicating how much of the asset you control.

In Forex, there is a standard rule: 1 Standard Lot = 100,000 units of the base currency (Base Currency)

The base currency is the first currency in the pair:

• EUR/USD: 1 Lot = 100,000 Euros (not dollars)
• USD/JPY: 1 Lot = 100,000 US Dollars
• GBP/USD: 1 Lot = 100,000 British Pounds

The value of 1 Lot in Baht depends on the exchange rate at that moment. If EUR/USD is at 1.10, then 1 Standard Lot of EUR/USD is worth 110,000 US Dollars. Converted to Baht (assuming 1 USD = 35 Baht), it’s approximately 3.85 million Baht.

Why does the market divide Lot into smaller sizes?

Because 1 Standard Lot requires a huge capital, the market breaks it down as follows:

Most brokers (such as Mitrade) use Micro Lot (0.01) as the starting size because it offers a reasonable risk feeling: not too small to feel nothing, but not so large as to dominate the mind.

The Truth About Choosing Lot Size

Many think that choosing a larger Lot to gain more profit is worthwhile. But this is a risk-taking mindset. Let’s look at a real example:

Two traders, Kao and Meter, both have $10,000 capital.

Kao is confident in the EUR/USD signal and decides to trade 1.0 Standard Lot with a 50 Pip Stop Loss (value $10 per Pip).

Meter trades 0.01 Micro Lot with the same Stop Loss (value $0.10 per Pip).

If the trade goes in the right direction (price rises 50 Pips):

• Kao: gains $500 (+5% of the portfolio)
• Meter: gains $5 (+0.05% of the portfolio)

If the trade goes against (price drops 50 Pips):

• Kao: loses $500 (-5% of the portfolio), remaining $9,500
• Meter: loses $5 (-0.05% of the portfolio), remaining $9,995

This is the key point: when Kao’s trade goes wrong again with the same signal, his portfolio blows up. But Meter can make nearly 2,000 such mistakes before his portfolio is exhausted.

Therefore, Lot Size is not a profit tool but a portfolio preservation tool.

Professional Lot Size Calculation Formula

Top traders never guess; they calculate. Their goal is to “set a loss” to a fixed amount, e.g., risking no more than 2% of the portfolio per trade.

Standard formula:

Lot Size = (Account Equity × Risk Percentage) ÷ (Stop Loss in Pips × Pip Value per 1 Lot)

In other words: you choose your Stop Loss based on your trading plan → decide how much you risk → the formula tells you how much Lot to trade.

Example 1: Forex EUR/USD

Data:

• Capital: $10,000
• Risk: 2% (= $200)
• Stop Loss: 50 Pips
• Pip Value (1 Lot): $10

Calculation:

• Lot Size = $200 ÷ (50 × $10)
• Lot Size = 0.4 Lot

Result: If you hit the Stop Loss, you will lose exactly as planned.

$200 Example 2: Gold XAUUSD

Gold differs from Forex because it has a different measurement unit:

• 1 Standard Lot of Gold = 100 Troy Ounces

• We often count “Points” instead of Pips $500 e.g., $0.01 = 1 Point$200

• When 1 Lot of Gold moves 1 Point, you gain/lose ### Data:

• Capital: $5,000

• Risk: 2% (= $100)

• Entry plan: Buy at 4,050.00, Stop Loss at 4,045.00

• SL distance: $1 = 500 Points

• Point Value (1 Lot): $5 Calculation:

• Lot Size = (÷ )500 × $1$1

• Lot Size = 0.2 Lot

Differences of Lot in Various Markets

A big mistake: traders think that 0.1 Lot is the same size across all markets. Wrong.

• 0.1 Lot Forex EUR/USD = 10,000 Euros
• 0.1 Lot Gold XAUUSD = 10 Troy Ounces
• 0.1 Lot Oil WTI = 100 Barrels

Risk and value are not the same. Using the same Lot size across different markets without knowing Contract Sizes is playing with fire.

Summary: Rethink Lot

Lot is not a random number. It’s a decision to preserve or risk.

Change the question from “How many Lots to trade to get rich quickly?” to “If I go wrong in this trade, how much Lot can I trade so I don’t get hurt badly and can continue?”

The answer to the second question is what keeps you alive because Forex trading is not a game of winning once like a god, but a game of surviving day by day.