Forex trading is one of the most popular investment activities in the world. It involves the buying and selling of currencies with the aim of making a profit from the fluctuations in their exchange rates. In the forex market, traders use different metrics to determine the value of currencies, one of which is the pip. A pip is a unit of measurement used to express the change in value between two currencies. It is also used to determine the size of a position in the forex market. One of the most common pip sizes used in forex trading is 0.2.
What is size 0.2 in forex?
In forex trading, the term size refers to the number of units of a currency that a trader is buying or selling. The size of a position is measured in lots, and each lot represents a certain number of units of the currency being traded. The standard lot size in forex trading is 100,000 units of the base currency. However, not all traders have the capital to trade in such large quantities. This is where the concept of mini-lots and micro-lots comes in.
A mini-lot is equal to 10,000 units of the base currency, while a micro-lot is equal to 1,000 units of the base currency. By trading in mini-lots or micro-lots, traders can reduce their risk exposure and still participate in the forex market. A lot size of 0.2 is equivalent to 20,000 units of the base currency, which is two mini-lots.
How does size 0.2 affect forex trading?
Size 0.2 is a popular position size in forex trading because it allows traders to have greater flexibility in managing their risk. For example, if a trader has a $10,000 trading account and wants to risk no more than 1% of their account on a single trade, they can only risk $100 per trade. If they were trading in standard lots, they would need to find a currency pair that has a pip value of $10 or less to maintain their risk management strategy. However, by trading in mini-lots or micro-lots, they can trade a wider range of currency pairs while still maintaining their risk management strategy.
Another advantage of trading in smaller position sizes is that it allows traders to gradually increase their position size as their trading account grows. For example, if a trader starts with a $10,000 account and trades in mini-lots, they can gradually increase their position size to one standard lot as their account grows. This helps to reduce the risk of blowing up their trading account due to over-leveraging.
Size 0.2 also affects the profit and loss of a trade. In forex trading, the profit and loss of a trade is determined by the pip value of the currency pair being traded and the size of the position. For example, if a trader buys 20,000 units of EUR/USD at a price of 1.1000 and sells it at a price of 1.1100, they would have made a profit of 100 pips. If the pip value of EUR/USD is $1, then the profit on the trade would be $100.
Conclusion
Size 0.2 is a popular position size in forex trading because it allows traders to have greater flexibility in managing their risk. By trading in mini-lots or micro-lots, traders can reduce their risk exposure and still participate in the forex market. Trading in smaller position sizes also allows traders to gradually increase their position size as their trading account grows. Ultimately, the size of a position in forex trading should be determined by a trader’s risk management strategy and trading goals.
