What lot size should a beginner trade?

Most beginners are best starting with micro lots (0.01), where a pip on EUR/USD is worth about $0.10. The right size for any trade comes from your stop-loss distance and the amount you are willing to lose, commonly around 1% of the account, rather than from a fixed number.

What is the difference between a limit order and a stop order?

A limit order trades at a better price than the current one: a buy limit sits below the market and a sell limit above. A stop order trades once the price reaches a worse level: a buy stop sits above the market and a sell stop below, often used for breakouts.

Does a stop-loss always close at the exact price I set?

No. A stop-loss becomes a market order once its level is touched, so in fast conditions or over a weekend gap it can fill at a worse price, known as slippage. In normal liquid markets the difference is usually small. Some brokers offer stops that lock in the exit price, usually for an extra charge.

Forex Lot Sizes and Order Types Explained for Beginners

Beginner4 min read

High angle stack of coins — Image by magnific on Magnific

What a lot is

In forex you do not type in “£500 of euros”. Trade size is measured in lots, and a lot is a fixed number of units of the base currency — the first currency in the pair. If base and quote are unfamiliar terms, see currency pairs explained first. Three sizes appear everywhere:

Standard lot — 100,000 units, shown on most platforms as 1.00.
Mini lot — 10,000 units, shown as 0.10.
Micro lot — 1,000 units, shown as 0.01.

Sizes can be combined: 0.25 lots is 25,000 units. One mini lot of EUR/USD means you are trading 10,000 euros; at a price of 1.1000 that is a position worth $11,000. You do not need that much in your account, because the broker only asks for a deposit against it — see leverage and margin for how that works.

Pip value per lot

Lot size matters because it sets how much each pip is worth to you. A pip is 0.0001 on most pairs and 0.01 on yen pairs, and pip value is simply units × pip size, paid in the quote currency. For EUR/USD:

Standard lot: 100,000 × 0.0001 = $10 per pip.
Mini lot: 10,000 × 0.0001 = $1 per pip.
Micro lot: 1,000 × 0.0001 = $0.10 per pip.

Those figures hold for any pair with the US dollar as the quote currency, such as GBP/USD and AUD/USD. For other pairs the pip value has to be converted. On USD/JPY, one standard lot gives 100,000 × 0.01 = 1,000 yen per pip; at a rate of 150.00 that is 1,000 ÷ 150 = about $6.67. The pip calculator handles the conversion for any pair and account currency.

Market, limit and stop orders

An order is an instruction to your broker. There are three main types:

Market order — buy or sell now at the best available price. You will almost always be filled, but in fast markets the price can differ slightly from the one you clicked — known as slippage.
Limit order — trade at a better price than the current one, or not at all. A buy limit sits below the market; a sell limit sits above it. It suits traders who expect a pullback before the move they want, but the price may never reach the order.
Stop order — trade once the price reaches a worse level than the current one. A buy stop sits above the market; a sell stop sits below it. It is often used to join a breakout. Once triggered it becomes a market order, so it can slip.

GBP/USD 1-hour chart ending at the current price, with a sell limit and buy stop drawn above it near resistance and a buy limit and sell stop below it near support — The four pending orders around a real GBP/USD price. Limits wait for a better price: a buy limit below the market at support, a sell limit above at resistance. Stops wait for a worse one: a buy stop above for a breakout, a sell stop below.

Limit and stop orders are pending orders. They wait on the broker’s server, so you need not watch the screen, and they can run until cancelled or until an expiry you set.

Stop-loss and take-profit

These are exit orders attached to a trade. A stop-loss closes the position if the price moves against you by a set amount, capping the loss. A take-profit closes it at your target. On a buy trade the stop-loss sits below your entry and the take-profit above; on a sell trade it is the other way round.

A stop-loss is a stop order underneath, so if the market gaps — over a weekend, say — it fills at the next available price, which may be worse than the level you set. Place it where your trade idea is proved wrong, such as beyond a recent swing high or low, rather than at an arbitrary number of pips.

A worked example

Your account holds $2,000 and you decide to risk 1%, or $20. GBP/USD is at 1.2700 and you expect a dip before it rises, so you place a buy limit at 1.2650 with a stop-loss at 1.2610 (40 pips below) and a take-profit at 1.2730 (80 pips above).

GBP/USD 1-hour chart from January 2024: price at 1.2700, a buy limit filled at 1.2650, a red risk box down to the 1.2610 stop and a green box up to the 1.2730 target — The guide’s worked example on real GBP/USD 1-hour candles: price at 1.2700, a buy limit at 1.2650, stop 1.2610, target 1.2730. At 0.05 lots that risks $20 to make $40. Here the dip filled the order and price went on to the target.

Affordable risk per pip: $20 ÷ 40 pips = $0.50.
At $0.10 per pip per micro lot, that is 5 micro lots — 0.05 lots, or 5,000 units.
If the stop-loss is hit: 40 × $0.50 = $20 lost, 1% of the account.
If the take-profit is hit: 80 × $0.50 = $40 gained, a reward-to-risk ratio of 2:1.
Margin at 30:1: 5,000 × 1.2650 = $6,325, and $6,325 ÷ 30 = about $211.

Notice the order of thinking: the stop distance comes first and the lot size follows from it, never the reverse. The lot size calculator and the stop-loss and take-profit calculator do these sums in seconds.

No order type removes risk. Forex and CFDs are leveraged products with a high risk of loss, so only risk what you can afford to lose.