What Is a Micro-Lot?
A micro-lot is a type of investment contract that is often utilized in foreign exchange, or Forex, trading. A lot of this type will involve placing an order that is structured to involve 1,000 units of the currency that is used as the base for the trade. This means that if the base currency used in a Forex deal happens to be the United States dollar, the micro-lot will be structured to involve $1,000 USD for the currency trade.
The micro-lot is only one of several types of lots that are used in Forex trading. The mini-lot will involve the use of 10,000 units of the base currency connected with the trade, while a standard lot will call for 100,000 units of the base currency in order to set up a currency trade. Determining a base currency for any type of Forex trading is essential, and will apply whether the investor is executing an order to buy or an order to sell. As part of the process, that base currency is the one that is used to fund the investor’s account, and will also serve as the currency that is used to buy the other currency in the trade, or as the basis for the remuneration that is received when the investor is selling that currency.
One of the benefits of using a micro-lot to structure a Forex buy or sale is that the investor can work with smaller quantities. This can be helpful if the investor prefers to keep the level of risk within a certain range, as the chances of losing a great deal of money on a micro-lot is considerably less than when buying or selling a standard lot or mini-lot. It is not unusual for Forex dealers to recommend this approach to new investors who want to get into Forex trading but do not have a lot of trading experience or much in the way of assets to cover potential losses.
In some cases, even seasoned investors choose to work with a micro-lot approach to Forex trading. The strategy can make it possible to structure multiple trades at the same time and generate a cumulative amount of profit that is quite impressive. This approach is also helpful when the investor anticipates that a particular currency will greatly appreciate in value over the next few trading days, but does not want to call a lot of attention to that prediction. By incrementally purchasing a series of micro-lots, less attention is called to the potential of that currency and the investor will have less competition in the marketplace.
Discuss this Article
Post your comments