About cent brokers, lot size and not only…


This article was born as a result of two years of technical support of commercial Expert Advisors and answering to user’s questions. I can tell you that few issues cause so many questions, confusion and misunderstanding as setting up the correct Money Management in the EA.

Talking more specifically, the problem is: how to set up the starting lot size for an Expert Advisor, depending on the deposit size and the account type? This task is complicated by the fact that different brokers may have dollar accounts and cent accounts, and the value of one lot may be also different. In this article, we will try to figure out what types of accounts exist in broker companies and how not to get confused in the calculation of the starting lot size.

Let’s start with the concept of the base currency. All transactions on your account are expressed in units of the base currency (profits, losses, etc.). The base currency can be USD, USD cent, EUR, EUR cent, and so on – rubles, rupees, tugriks and so on. As a rule, the base currency is easy to grasp and it doesn’t create any problems. If you refilled your account with 1000$ and you see 1000$ on the account balance, it means that the base currency is USD. If you see the account balance of 100,000, this means the base currency is USD cent. So far, everything is simple, isn’t it?

The second important concept: the size of one lot in the base currency units. Attention: Here starts the confusion! Often, under the “lot size” people mean the numbers you type in when creating a trading order in your terminal, for example: 0.1, 0.01, or 10.0. In fact, these numbers mean the volume of your order in units of broker’s lot. And because the size of different broker’s lots may be different, the same number, for example 0.1, might mean different amount of money for different brokers.

Most brokers use the standard lot size: 1 lot = 100,000 units of the base currency. In other words, if you have a dollar account, 1 lot is equal to 100,000$, and if you have a cent account, 1 lot is equal to 100,000 cents. But there are some brokers that use a 10 or even 100 times smaller lot size. For example, XMarket uses 1 lot = 1,000$ on micro account. Thus, although XMarket micro account has USD as the base currency, a trading order with 0.1 lot will be equivalent to an order with 0.1 lot on the standard cent account. How not to get lost in all these lots? Very simple: just count the cost of 1 point!

So, we are coming to the third important concept: the price of one point. Let us agree that under ”one point” we will always assume a 4-digit point (also called “the old point”), i.e., 0.0001 for EURUSD. When you start to trade with a new broker or a new type of account, the very first things you have to figure out are the minimal lot size and the price of 1 point for the minimal lot.

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Example №1: dollar account and the standard lot size. In this case, for any pair of xxxUSD type, 1 point for 0.1 lot = 1$ and 1 point for a 0.01 lot equals 0.1$ or 10 cents.

Example №2: cent account and the standard lot size. All the same, only cents are instead of dollars. 1 point for 0.1 lot = 1 cent, and 1 point for 0.01 lot = 0.1 cent.

Example №3: dollar account and the lot size is 100 times smaller than the standard one (1 lot = 1,000$). Then 1 point for 0.1 lot = 1 cent, and 1 point for 0.01 lot = 0.1 cent.

Let us now introduce the following classification of accounts, according to the price of 1 point for the minimal lot:

1. Nano accounts. The price of 1 point for the minimal lot = 0.1 cent. These include Cent accounts with the minimal 0.01 lot. Good example is Forex4you (account types: cent lite, cent ndd).

2. Micro accounts. The price of 1 point for the minimal lot = 1 cent. These include Cent accounts with the minimal 0.1 lot. Good examples are Roboforex (account types: fix cent, pro cent), FxOpen (account types: micro).

3. Mini accounts. The price for minimal lot: 1 point = 10 cents. These include dollar accounts with the minimal 0.01 lot. Most accounts fall into this category. Example: Alpari (account types: ECN, PRO).

4. Ordinary accounts. The price for the minimal lot: 1 point = 1$. These include dollar accounts with the minimal 0.1 lot. Example: FxOpen (ECN).

5. Max accounts. There exist also accounts with the minimal 1.0 lot (bank forex, such as VTB 24), they have the price of 1 point = 10$ for the minimal lot.

Knowing the lot size of your broker is also useful to estimate the size of margin required to open a trading order. Here is a simple question to you, answer it without thinking: is it possible to open a trading order with a volume of 0.2 lots on a regular account with the leverage of 1:100, with a 100$ deposit? Well? Check your answer: 0.2 lots means 0.2 *100,000 = 20,000$. With a 1:100 leverage, the margin for such an order would be 20,000$ /100 = 200$, i.e., twice as large as your deposit. So, the answer is no.

Scr05Another interesting question that often causes confusion: what does it mean “Margin Call” and “Stop Out”, specified in the trading conditions of each broker? It’s funny that the idea of the deposit loss (or, “blowing up” the deposit) is often associated with Margin Call (MC). In fact, Margin Call in the original the market will open with a gap on Monday and the deposit (and therefore, a broker) will catch a sense is “the first Chinese warning” when the broker is supposed call the customer and warn him/her about the difficulties on the account. Obviously, today such tenderness is no longer in vogue. However, many brokers reserve the right to close the client’s position after reaching the level of Margin Call, but usually they do not use this right. The actual level at which the positions are closed, is the Stop Out. In which case the position may be closed by Margin Call before it achieves the level of Stop Out? Well, for example, if you open a large position that slipped to the level of Margin Call at the market close on Friday. In this case, it is likely that loss. In such situation, the broker will not risk and most likely will close the position on Friday.

The most actual for real trading is the level of Stop Out. What does it mean, for example, the Stop Out level of 20%? To understand this, let us consider what happens when – as delicately formulated in textbooks – “the situation goes against us.” We have open position of some total lot for which the broker reserves a part of our account deposit (which is called margin) and which is independent (or nearly independent) from the current price. In addition to the margin, we have a drawdown of open positions, which depends on the current price. Free account equity = account balance – margin – drawdown. If the price continues to move against us, eventually, free account equity will turn to zero. However, this is not yet the end in the most cases. More exactly, Stop Out will occur at this point only if the Stop Out level = 100%. In our example, the Stop Out level = 20%, which means that the broker will close all positions only when the drawdown will eat not only all the equity, but also 80% of the margin.

Which practical conclusions can we make out of this? Is there a big difference between the Stop Out level of 10% and 50%? Let’s estimate. Forex Warrior EA, with an initial lot of 0.01 and its typical settings opens a basket with the 14 grid levels (the maximum allowed number) and the total volume of about 10 lots. With the leverage of 1:500, the margin for 10 lots will be 2,000 (dollars or cents, depending on the account). The minimal required deposit is 10,000. If the account equity reaches zero, the margin will be about 4 times smaller than the drawdown. In real situations, the margin is typically about 10 times smaller than the drawdown. Therefore, the difference between the levels of Stop Out of 50% and 10% corresponds to a 4% vitality increase of your deposit. Not too much, but better than nothing.

Now let’s make a compilation table of Nano and Micro accounts of various brokers, which can be used for automated trading with martingale Expert Advisers.
Nano accounts. The price of 1 point = 0.1 cent for the minimal lot.

Base currency Leverage Min/Max lot size Max orders Max deposit Stop-Out notes
Forex4you cent lite, cent ndd USD cents 1:500 0.01/10 200 10%
InstaForexcent.standard, cent.eurica USD cents 1:1000 0.1/10000 1000$ 10%
TradeFortfort cent, flex cent USD cents 1:1000  для счетов <1000$, 1:500 0.01/100 ? 10% Max total position volume 10 standard lots
IBFXMini USD 1:400 0.01/500 ? 50% Max total position volume 500 lots
XEMarketsmicro USD 1:888 0.01/100 200 20%
GrandCapitalmicro USD cents 1:500 0.01/1000 40%
FOREXStart micro USD cents 1:500 0.01/10000 50 ? Anyone tried?
ForexBrokerIncmini USD 1:500 0.01/100 10000$ 20% Anyone tried?

Micro accounts. The price of 1 point = 1 cent for the minimal lot.

Base currency Leverage Min/Max lot size Max orders Max deposit Stop-Out Notes
Forex4you cent USD cents 1:500 0.1/100 200 10%
InstaForexinsta.standard, insta.eurica USD 1:1000 для счетов <1000$,1:600 0.01/10000 no no 10%
Roboforex fix-cent, pro-cent USD cents 1:500 0.1/100 ? no 10%
FxOpen USD 1:500 0.1/1000 100 3000$ 10%
LiteForexLITE USD cents 1:1000 0.1/100 300 20%
TradersWay micro USD 1:1000 0.1/100 ? 1000$ 30% Anyone tried?

 

rewriting: Hannayloopsider
26.02.2015

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