If pips and points tell you how far price moves, then lots and leverage decide how much money you make or lose from that move.
This is one of the most important concepts in trading—get this right and you survive long-term. Get it wrong and accounts get wiped.
Let’s break it down cleanly, with real examples.
PART 1: LOTS (Position Size)
1. What Is a Lot?
A lot is the size of your trade.
It tells the broker how much of an asset you are buying or selling.
In forex, 1 lot = 100,000 units of the base currency.
2. Types of Lots (Forex)
| Lot Type | Size | Pip Value (EUR/USD) |
|---|---|---|
| Standard Lot | 1.00 | $10 per pip |
| Mini Lot | 0.10 | $1 per pip |
| Micro Lot | 0.01 | $0.10 per pip |
| Nano Lot | 0.001 | $0.01 per pip |
Example
- Trade size: 0.10 lot
- Market moves: 30 pips
- Profit/Loss = $30
3. Lot Size in Other Markets
Gold (XAU/USD)
Typical contract:
- 1 lot = 100 ounces
| Lot Size | Approx Value |
|---|---|
| 1.00 lot | 100 oz |
| 0.10 lot | 10 oz |
| 0.01 lot | 1 oz |
If gold moves $1:
- 1.00 lot → $100
- 0.10 lot → $10
Indices (NAS100, US30, DAX)
- Lot = contract size
- Pip value depends on broker
Example:
- NAS100 1 lot = $1 per point
- Move of 50 points = $50
PART 2: LEVERAGE
4. What Is Leverage?
Leverage allows you to control a large trade with a small amount of capital.
Think of it as borrowed power from the broker.
5. Leverage Format Explained
| Leverage | Meaning |
|---|---|
| 1:10 | Control $10 with $1 |
| 1:100 | Control $100 with $1 |
| 1:500 | Control $500 with $1 |
| 1:2000 | Control $2000 with $1 |
6. Margin: The Cost of Using Leverage
Margin is the money locked by the broker to keep a trade open.
Margin Formula
Margin = Trade Size ÷ Leverage
Example (Forex)
- Trade: 1 lot EUR/USD
- Trade value = $100,000
- Leverage = 1:100
Margin required:
$100,000 ÷ 100 = $1,000
So with $1,000, you control $100,000.
7. Small Account Example (Very Important)
- Account balance: $500
- Leverage: 1:500
- Trade: 0.10 lot EUR/USD
Trade value:
0.10 lot = $10,000
Margin = $10,000 ÷ 500 = $20
You only need $20 margin, but your risk is still real.
PART 3: LOTS + LEVERAGE = RISK
8. Why High Leverage Is Dangerous
Leverage magnifies:
✔ Profits
❌ Losses
Example:
- Trade: 1 lot
- 50 pip loss = –$500
Even if margin was small, the loss is full size.
Leverage doesn’t change risk—lot size does.
9. Safe Lot Size Rule (Golden Rule)
Risk per trade = 1%–2% of account
Example
- Account: $1,000
- Risk: 1% = $10
- Stop-loss: 20 pips
Lot size:
$10 ÷ 20 pips = $0.50 per pip
= 0.05 lot
This is professional risk management.
10. Margin Call & Stop Out (Must Know)
Margin Call
When free margin drops too low, broker warns you.
Stop Out
Broker automatically closes trades to prevent negative balance.
Cause:
❌ Too large lot
❌ Over-leverage
❌ No stop-loss
11. Beginner Mistakes 🚫
❌ Using max leverage because it’s “available”
❌ Trading big lots on small accounts
❌ Confusing margin with risk
❌ No stop-loss
❌ Over-trading
12. Professional Trader Mindset 🧠
✔ Low lot sizes
✔ Consistent risk
✔ Leverage used as a tool, not a weapon
✔ Survive first, profit later
Accounts don’t blow because of bad strategies—
they blow because of bad lot size.
Quick Summary
| Term | Meaning |
|---|---|
| Lot | Trade size |
| Leverage | Borrowed trading power |
| Margin | Money locked |
| Risk | Controlled by lot size |
| Profit/Loss | Depends on pips × lot |
