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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. $50 ÷ 25 pips = $2 per pip. A micro lot (0.01) of EUR/USD is worth $0.10 per pip, so $2 ÷ $0.10 = 20 micro lots = 0.20 lots. You set your lot size to 0.20.
