# How to calculate Forex lot size Part 2

The transaction amount will be 3,000 * 100 = 300,000 US dollars. If we are going to invest 100% of the money in one transaction, then the maximum lot size for EUR / USD 1.2500 is 2.4 lots. But we are going to adhere to the rules of risk management. Allowable risk per trade is 3000 * 0.05 = \$ 150. Since we can afford a maximum drawdown of 50 points, the maximum allowable cost for us for a point is 150/50 – \$ 3 per 1 point. Let me remind you that for a standard lot, the cost of a point is \$ 10. Therefore, the maximum allowable maximum lot is 0.3. The minimum lot size is 0.01. For a 0.3 lot, you need \$ 37,500, we invest \$ 375 (12.5% ​​of the deposit, which corresponds to the risk management rule) and use a leverage of 1: 100.

Thus, the lot size directly depends on what drawdown the trader will take into account in the calculations. Here, the simplest model in Excel will be appropriate, which will show the dependence of the lot on the drawdown (or stop value).

The second method of calculation using leverage provides that the maximum risk of all open positions should be no more than 15%. 3000 * 0.15 = \$ 450, which with a leverage of 1: 100 is \$ 45,000. Divide the position by the current rate (for example, 1,2500 for EUR / USD ). 45000/125000 = 0.36 lots. The result is almost similar to the previous one, but I do not like this method. It does not take into account drawdown.

If a trader adheres to the strict rule “fixed percentage of deposit per transaction” and “a fixed percentage of deposit for all transactions in the market”, then the leverage does not play a role. The larger the lot volume, the higher the value of the item and the faster the deposit will melt in the event of a price reversal.

Output. Lot size depends on:

• The volatility of the asset and the choice by the trader of the method of its assessment (level of stop-loss).
• The level of acceptable risk for all open transactions, which each trader determines individually.
• Deposit Amount.
• Leverage (depending on the calculation method).

In trading advisors, the initial lot size is set in the “Lots” parameter. You can also use the automatic lot calculation system by turning on the UseMoneyManagement parameter, indicating the level of risk and the size of the maximum lot.

### What is a lot in other markets

In other markets, the definition of a lot is fundamentally different from Forex terminology:

• Binary options Here the lot is the rate that the trader makes, predicting the price movement in one direction or another. The rate of expression is monetary. That is, there is no lot as such, but a bet step is provided.
• Stock market. Since the price of shares may range from a few cents to thousands of US dollars, the approach to the terminology of the lot is different. On the Moscow Stock Exchange for VTB securities one lot is 1 thousand shares, for securities of some oil companies 1 lot is equal to one share. NYSE and NASDAQ in most cases set the value to “1 lot = 100 shares”, it is almost impossible to buy a fractional lot.
• Derivatives market. Here the approach to determining the lot and calculating its volume is even more complicated. It takes into account the price step specified in the specification, stops level and risk, and the result is measured in the number of contracts. Who is interested in a more detailed formula, ask in the comments.

Output. Assessing the level of risk and calculating the maximum allowable lot size is one of the foundations of a risk management system. Deviations are allowed. In volatile markets, the risk level for each transaction makes sense to lower, but at the same time increase the length of the stop. On trending, on the contrary – it makes sense to put shortstops and use the technique of increasing the position. Before the start of trading, it makes sense in the historical period to calculate the minimum, average and maximum length of stops (separately for each instrument) and prepare a model that will allow you to quickly change input data and adjust the volume of transactions in case of changing market conditions. Still, have questions – write them in the comments. And success in trading!