Forex micro lot trading has a large number of benefits for currency traders. Forex micro lot trading can be used as a bridge between demo trading and full scale lot trading. The benefits of micro lot trading the forex are numerous and these benefits are outlined in this article. This long list of benefits will help your forex trading to progress in the right direction towards full scale lot trading.
What Is A Forex Micro Lot
Here is a comparison of lot sizes to each other. A micro lot is 1/10th of a mini lot and 1/100th of a regular lot (standard lot). Conversely one mini lot equals 10 micro lots and one regular lot equals 100 micro lots. In decimal equivalents one micro lot is equal to 0.01 regular lots. One micro lot also equals 0.1 mini lots. Trading 1 micro lot is the smallest amount of real money that most forex brokers will allow you to trade, a few brokers do offer nano lots.
Demo Trade Before Micro Lot Trading
If you have a trading system you like, the first step is to demo trade that system until you are comfortable, profitable and consistent. We can offer the Forexearlywarning trading system in your pursuit of finding a high quality trading system.
Successful demo trading might be some level of consistency like 3 to 1 win/loss ratio or some other criteria. You would demo trade first to test the effectiveness of the trading system you have chosen. If you find an effective system and can successfully trade that system in a demo environment, you are ready to start micro lot trading. If you cannot prove in a demo account that your trading system works, you must first find a trading system that works for you and produce profitable demo trades before moving on to micro lot trading.
Demo trading gets you familiar with your brokerage platform and setting market orders and stop orders as well as continuing to validate the effectiveness of your trading system. Tracking and documenting your progress through the demo and micro lot trading process can be done with a forex trading journal. You should begin your forex micro lot trading program only after successfully demo trading.
How Traders Can Use Micro Lot Trading To Progress
At the point you begin micro lot trading you still have not risked any real money. Forex micro lot trading gives traders a chance to experience real money trading with low risk. Entering trades with 2-4 micro lots with a stop order, after successful demo trading is best way for forex traders to start real money trading while ramping up to full scale lots. This is smart money management while improving your skill set of entering and managing real money trades. If everything goes well you can commit to trading 6, 8, 10 micro lots and continue ramping up to full scale lots. Any trader can trade small amounts of real money 2 micro lots with a stop order to continue testing your trading method with low risk.
When trading with micro lots you have much more flexibility in managing your trades, versus mini lot trading or even regular lot trading. If you are in a profitable forex micro lot trade you can scale out lots as the trade continue into positive pips. Micro lots facilitate the scaling out process. Your account balance and equity will increase as you scale out profitable micro lots. With forex micro lot trading you only put up a small amount of your money on a trade and using the 50:1, 100:1 or higher leverage to your advantage. Earn while you learn.
If you trade even amounts of micro lots like 2, 4 or 6 you can always scale out half of your lots and practice your money management techniques and profit management techniques when you have profits to take. With micro lot trading you are learning how to make $50 on a trade before you ramp up to full scale lot trading, where you would be looking for larger profits. Trading micro lots can also help to keep your emotions in check. There is not much emotional attachment to trading 2 micro lots with a 30-40 pip stop, if you are using a trading system like Forexearlywarning.
Using Micro Lots For Position Sizing and Leverage
Micro lot trading teaches you about position sizing in a live trading account, with low risk. When you trade micro lots you can learn about leverage and margin simply by observing the account balances fluctuate when you are in a live micro lot trade. When you are in a live micro lot trade, you can watch the balance, equity, margin amount, free margin, and profit or loss values. This is solid educational value for your future live trades.
Many websites have lot size calculators and pip value calculators. These calculators are fine but actually trading live with micro lots and watching your account margin and free margin balances are a much better teacher. Micro lot trading will teach you all you need to know about leverage.
Same thing for position sizing. Many forex traders ask: How many lots do I trade?? Once again, trading live with micro lots and watching your margin, equity and free margin balances fluctuate during a live micro lot trade will teach you how to not over leverage with live examples. A series of 10-20 micro lot trades will give you a load of experience that cannot be matched with an online calculator. You will learn how many lots to trade naturally and never over leverage your account.
When you want to progress from micro lots to larger trade sizes and amounts like mini lots you can still use micro lots effectively, just use larger amounts of micro lots. Example: If you would like to start trading 2 mini lots just trade 20 micro lots instead. If you are in a profitable trade, micro lots will facilitate scaling out lots at multiple price levels. This is convenient for scaling out lots and better profit management. Even if you want to trade one regular lot (standard lot), you have the option of trading 10 minilots or 100 micro lots. Once again micro lots or even mini lots would facilitate scaling out lots on profitable trades as the trade continue into more positive movement.
Broker Platforms and Forex Micro Lot Trading
To facilitate micro lot trading make sure your forex broker of choice offers trade sizes in micro lots, here is a handy forex broker selection guide. This is why it is imperative to demo trade any new trading platform first. On some brokerage platforms when you enter a trade and the position size is 2, that would be two minilots. So a position size of 0.2 will be two micro lots. Some brokerage platforms are adjustable so that a position size of 2 can be whatever you designate. It can mean two micro lots, 2 mini lots or two regular/standard lots.
Forex Micro Lot Trading Example
Look at the micro lot trading example below. The JPY starts to strengthen across the board and the JPY pairs start dropping. The alerts hit and The Forex Heatmap® forex heatmap indicates a sell entry on the USD/JPY.
At point number one you sell 6 micro lots of the USD/JPY. Then at point number two you move your stop order to breakeven and scale out three micro lots. When the pair stalls at intraday support at point number 3 you scale out 3 more lots and the trade is now completely closed out as a day trade. But with micro lot trading you have the option of scaling out two micro lots at point 2 and 3 and holding on to two more micro lots. Then you can keep two micro lots with a breakeven stop if the USD/JPY is trending down on the the larger time frames like the H4, D1 or W1. The two micro lots you keep can many times wind up making you much more money than the micro lots you have already closed out. You have mathematical other options as well. So the benefit of micro lot trading is flexibility.
Here is our video study guide for forex micro lot trading:
CONCLUSIONS: The benefits of forex micro lot trading and contribution to the overall success of any forex trader is quite clear, especially when managing live trades. After you demo trade, progressing to micro lots will teach you many valuable skills like profit management that will help your account grow over the long term. You may decide to keep using micro lots even on larger trade sizes.