Forex Academy:
Middle School
5 minutes
Lesson 10
How much should I trade?
- What does this decimal mean?
- How much is a 0.01 lot?
- If only $12 is required per trade, does that mean I can place more orders with my funds? Is that okay?
- What is Margin? What is the difference between Equity and Free Margin?
How much should I trade?
You have deposited money and started trading.
When you open the order screen, what do you do?
Instead of seeing standard amounts, you encounter strange decimal numbers.
What do these numbers mean? How much money do they represent?
What does this decimal mean?
How much should I trade?
First of all, these decimal numbers represent the units used in Forex trading. In Forex, 1 lot = 100,000 currency units.
At Hirose, we recommend trading with a minimum transaction size of 0.01 lots (1,000 currency units).
Additionally, we do not recommend placing multiple orders at the same time. Instead, we suggest closing any open orders before placing a new one.
This approach is especially recommended for beginners who have deposited $50.
By starting with small lot sizes, you can gradually become familiar with trading. Once you gain experience, you can increase both the lot size and the number of trading orders.
For a more detailed explanation of lot sizes, visit: https://hiroseag.com/help-center/academy/lesson1-6/
How much is a 0.01 lot?
The exact amount may vary depending on the currency pair.
To place a 0.01 lot trade order, you will need approximately $12 as a deposit.
I will explain more about the deposit in the next section, so please continue reading.
If only $12 is required per trade, does that mean I can place more orders with my funds? Is that okay?
You can, but if you use up all your capital, the risk of loss increases.
One of the advantages of Forex trading is that even if you are currently at a loss, waiting can sometimes turn that loss into a profit.
In trading, “waiting” means holding your position, but to do that, you need sufficient funds.
If you run out of money, you won’t be able to hold your position and will be forced to take a loss.
Therefore, having additional funds beyond the required amount for a 0.01 lot order can help you stay in the market longer and increase your chances of making a profit.
For a safer approach, it is recommended to maintain an account balance of at least $50.
What is Margin?
What is the difference between Equity and Free Margin?
These are completely different concepts, and understanding them is essential for trading.
To make it easier to understand, let’s use an example where you have $100 in capital.
If you have deposited money but have not placed any trades:
Account Balance = Equity = Free Margin
Since no trade orders have been placed, no margin is involved yet.
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Now, you have placed an order of 0.01 lot.
After some time, you have earned a $10 profit. Your account balance information will be updated as shown in the image below.
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Understanding Margin, Equity, and Free Margin
①
Margin (Required Margin)
Margin is the amount required to place an order, as explained earlier.
For example, a $12 deposit is required to place a 0.01 lot order.
②
Equity represents your current account balance, including the profit and loss of open positions.
Since profits and losses change with the market, equity also fluctuates.
Formula:
Account Balance ± Profit/Loss of Open Positions = Equity
100 + 10 = 110
③
Free Margin is the remaining amount available for placing new orders.
It is calculated as Equity minus Margin (Required Margin).
Formula:
Equity – Margin = Free Margin
110 – 12 = 98
Margin Level & Automatic Stop Loss
There is another important term related to Margin called Margin Level, which is crucial for
Automatic Stop Loss.
This is a critical concept in trading.
For more details, check out the following lesson: https://hiroseag.com/help-center/academy/lesson1-8/
Conclusion
How Much Should I Trade?
When you are new to trading, it is recommended to start with an order of 0.01 lot.
To place a 0.01 lot order, you will need approximately $12 as a deposit.
That concludes the lesson on “How Much Should I Trade?”
Now, let’s test your understanding!
In the next lesson, we will guide you about Swap fee. Please continue to follow.
If you have any questions, please contact us.