What is Lot Size and Risk Management, and Why May You Need it?
A standard lot size in forex refers to 100,000 units of any base currency. In vague terms, lot size is the money you put at risk when you open a trade. Let’s say you open a position of 1 lot or 100,000 US dollars against Japanese yen at 100.00. The price fluctuates, and the yen gains on the dollar, rising to 100.30, then you have made 300 dollars on your forex trade. However, if you sold dollars against the yen and the price rises, you would have lost 300 dollars. There are smaller lot sizes such as mini and micro lots, representing 10,000 and 1,000 units of currency, respectively.
Risk management is one of the essential topics in forex trading. It includes the money you put at risk, along with your lot size and risk/reward ratio. This vital trading component is ignored by all newbies and is one of the reasons for blowing up forex trade accounts. Most professionals practice perfect risk management, which allows for a 0.5 to 1 percent risk of your total equity on a single trade. However, more aggressive traders may increase this mark up to 5 percent per trade. Let’s say you have a 10,000-dollar account with a leverage of 100. Initially, you will be able to open a position of as much as 10 lots, but even with a stop loss of 20 pips, you will wipe 200 dollars off your account in the case of a losing trade. A 2% loss on a single trade is not good, especially for beginners and amateurs; therefore, learning proper risk management is critical.
The 90 percent dropout rate in the forex industry is mainly because traders cannot manage their lots and risks correctly. With more forex traders gearing up to get rich overnight, they overlook risk management, resulting in blowing accounts worth millions of dollars. Using the proper lot size, along with risk management, will help you become profitable in no time.
How the Lot Size and Risk Management features work in Forex Copier.
Forex copier gives you many features that help manage your lots and risks when you are trading on multiple accounts. While using the forex copy trading software, you can choose to keep the lot size the same on both source and receiver accounts or use the custom lot feature if the account balances are different.
Lot Multiplication Feature
You can set a custom multiplier that will multiply the incoming lot size with the desired value. Depending on the value, the lot size on the recipient will be changed accordingly.
Figure 1: The image shows a variety of lot/risk management options available as you turn on the use custom lot size in trading copier.
It is one of the most useful features in the auto trade copier. Checking the following option of forex copy trader will enable you to open a position on a receiving account based on its equity. For example, if the source account equity is 10,000, and the receiver has equity of 20,000. In this case, the order opened on the recipient will be multiplied by 2 automatically.
Selecting this option on the Forex Copier will let you set the desired value for the recipient account’s lot size. Source account lot size will be ignored in this case.
Risk Management Based on Equity
Mirror trading software allows you to select custom risk management based on source account equity. The lot size of the incoming order with a stop loss is changed because the percentage risk is higher or lower on the receiving MT4/MT5® account of forex trade copier software. The original order must have a stop loss for it to work.
Figure 2: Image shows highlighted option for setting percentage risk with copy trader.
The receiver account position will be modified based on the difference in leverage between it and the source account. For example, if the receiver account has a leverage of 100 while the source has 200, then the position on the receivers’ end will be multiplied by two.
Lot Size for Specific Currencies
Setting a custom lot multiplier for a particular currency pair so that every incoming trade has its size increased according to the amount set. E.g., setting a lot multiplier as 2 for GBP/USD. The lot size of an incoming trade copied by the mirror trading software in this pair will be multiplied by 2. See figure 3
Figure 3: The image shows the button under the red rectangle, which you can click for changing lots on specific currencies with copy trade software.
Benefits of Using the Lot/Risk Management Feature of Forex Copier
The following benefits can be achieved using the lot/risk management feature of Forex Copier:
You can have perfect risk management on your accounts.
You don’t have to go through the hassles of doing all the math yourself.
Better account management as your sole focus will be on one account.
As your risk and lots are managed, you can also control other trading aspects like psychology and strategy more easily.
Having proper risk management can help you become a consistent trader much faster.
Currency based lot settings can better help you adjust the position size for the pairs that have higher spreads and swaps on other forex brokers.
You can grow your portfolio on multiple accounts using specific leverage and lot adjustments.
Using the lot/risk management feature in Forex Copier has a lot of benefits. Outcomes achieved by risk and lot management combined with Forex Copier can have a positive effect on your automated copy trading profits. It is perfect for everyone, whether he or she is a beginner, amateur, or professional.