Pips – Dollars – Percentage – ?

Posted on 28. Sep, 2009 by Jakob in How To, Random Noise

When I started out trading forex, I was often confused about all the different terms which are often used in the forex industry. For some time, I was sure that “making pips” was what I needed to learn. If I could make 100 pips a day I would be profitable, right? But then again, what I really wanted was not pips, but actual money. However, I knew there was a link between the two, so I stayed with the idea about pips. I am certain that I am not the only one who has made this mistake. Furthermore, whenever you see some new EA or forex system, the sales page is always filled with statements about how much money you can make with whatever they are selling. This does not make sense. There is no point in writing that a system will make you thousands of dollars within days, as this all depends on how much you are willing to risk, in addition to your account balance. I promise you that you will not be making $10.000 in a couple of days if your current account balance is say maybe $10. But if you have an account balance of maybe 20 zillion billion dollars, then you could probably make a lot more, than what they state (that is, of course only if they tell the truth, which they most likely don’t). However, it is relative, just as pips. Who cares if you can make 10.000 pips in a week if you need to use a stop loss of 5.000 pips per trade? It all comes down to risk/reward ratio and money management. Even though someone claims to be up 500 pips for the month, it is still possible that the actual percentage of return for the month is negative.

What you should be looking for at all times is percentage. If a system or a forex signal provider can show you a proof of 10% returns on account balance per month, then we are talking. Of course you still need to consider the risk, and if this fits your strategy, but percentage will give you a clear picture of what you can expect to make, as this can be calculated with your own account balance. Whenever you are doing some kind of research, looking for a new system, EA or forex signal provider, always look for percentage. This will show you the true performance.

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Tags: forex training, How to trade forex