When trading currency pairs, choosing the right size for your trade is crucial for proper risk management. Currencies are bought and sold in certain sizes. And these sizes are measured in lots. The smallest purchases traders can make are made in nano lots. Let’s dive deep to understand what a nano lot is and how it can be beneficial for traders.
Nano lot definition
A nano lot is the smallest possible lot size traders can open their positions in. A nano lot equals 100 units of a base currency. For example, if a trader buys 1 nano lot of EUR/USD, he or she purchases 100 Euros against the US Dollar. In addition to nano lot, there are micro lots, mini lots, and standard lot available for traders to open positions in.
Why it is important for traders to understand nano lots
- Nano lots help traders with tiny trading capitals to participate in Forex trading.
- Understanding nano lots in trading will help traders select their trading positions better.
- Trading using nano lots helps traders to test their trading strategies live while risking a very small portion of their capital.
Nano lots explained in more detail
Nano lots are the smallest trading sizes traders can open positions in. 1 nano lot equals 100 units of a base currency in a currency pair. To understand what nano lot means better, let’s take a look at this example: if a trader sells 1 nano lot of USD/JPY, it means that the trader has sold 100 US Dollars against the Japanese Yen. and waits for the price to drop to close the position. The clear downside of trading using the Nano lots is that the potential for high rewards is almost non existent no matter how the price changes.
Nano lots may not be great for making money, but they are outstanding when it comes to trading using small capital. Nano lots come handy when testing trading strategies in a live environment. Nano lots also help traders to get back their confidence after a series of losses in the market. As every trading strategy experiences drawdown periods and decreasing position size and focusing on performance rather than profits can help traders recover.
Example of nano lots in forex trading
Now let’s take a look at what happens when a trader buys a currency pair using a nano lot and the trade earns him 40 pips. Let’s assume a trader is interested in buying a nano lot in the GBP/USD pair. The trader buys at 0.8735 and sells once the price reaches 0.8775. The 40 pips from the trade would amount to $0.40 in capital gains (assuming there are no commission charges).
Main takeaways from nano lots
- Nano lots are the smallest lot sizes offered by forex brokers
- Nano lot id equal to 100 units of the base currency
- Nano lots are highly useful when testing trading strategies live and risking small portion of your capital
- Not all brokers are offering nano lots to their traders
FAQs on nano lots in forex
What are nano lots in forex?
Nano lots are the smallest sizes traders can open their positions in. 1 nano lot equals 100 units of a base currency in a Forex pair. For instance, if a trader sells USD/CAD, he or she sells 100 US Dollars against the Canadian dollar.
Should I trade nano lots?
Trading nano lots allows you to pledge less funds for each trade and test your trading strategies live. Nano lots help traders to rebuild their confidence after a series of losing trades. In addition, nano lots are great for traders that have limited capital and would like to participate in Forex trading.