Lot size refers to the specific volume of a trade, determining how much of an instrument you are buying or selling. Choosing the right lot size is a core risk management decision — it directly affects pip value, required margin, and how much money is at stake per price movement. Most risk management systems recommend risking no more than 1–2% of your account balance per trade, then calculating lot size from that.
Your account has $5,000 and you want to risk 1% ($50) on a trade with a 25-pip stop loss. Each pip on a micro lot (0.01) of EUR/USD is worth $0.10, so you need 50 ÷ 0.10 = 500 pips worth of micro lots — which means 0.20 lots. You set your lot size to 0.20.
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