Forex day trading is an exciting activity that promises potential profits for traders who have the skills and discipline to execute trades successfully. As a forex day trader, it is important to understand the concept of pips and how to calculate profits in pips. In this article, we will explore the question of how much profit in pips a forex day trader should make per trade.
What are pips?
Pips are the smallest unit of measurement used in forex trading to indicate the change in the value of a currency pair. A pip is the fourth decimal place in the exchange rate of a currency pair. For example, if the EUR/USD exchange rate is 1.2345, a change to 1.2346 would be a one-pip move.
The value of a pip depends on the lot size of the trade and the currency pair being traded. One standard lot of a currency pair is equivalent to 100,000 units of the base currency. The value of a pip for one standard lot of EUR/USD is $10. Therefore, a move of one pip in a standard lot of EUR/USD would result in a profit or loss of $10.
How much profit in pips should a forex day trader make per trade?
The amount of profit in pips that a forex day trader should make per trade depends on various factors, such as the trader’s trading strategy, risk management, and market conditions. There is no fixed number of pips that a trader should aim for per trade, as it varies from trader to trader.
However, a general rule of thumb for forex day traders is to aim for a profit target of 10 to 20 pips per trade. This means that a trader would aim to make a profit of 10 to 20 pips on each trade they execute. This profit target is achievable for most traders, as it is a small amount of pips that can be easily captured in a short period of time.
However, it is important to note that the profit target should be based on the trader’s risk-reward ratio. The risk-reward ratio is the amount of potential profit a trader expects to make on a trade compared to the amount of potential loss. A trader’s risk-reward ratio should be at least 1:2, meaning they are willing to risk one unit of currency to make two units of currency.
For example, if a trader is willing to risk 20 pips on a trade, their profit target should be at least 40 pips. This ensures that the trader’s potential profit is greater than their potential loss, and they have a positive expectancy in their trading strategy.
Factors that affect profit in pips
There are several factors that can impact a trader’s ability to make a profit in pips, including market volatility, liquidity, and news events. Market volatility refers to the degree of price movement in a currency pair. The more volatile a market is, the greater the potential profit or loss can be.
Liquidity refers to the ease with which a currency pair can be bought or sold in the market. Highly liquid currency pairs, such as EUR/USD, have tighter spreads and lower trading costs, making it easier for traders to capture small profits in pips.
News events can also impact a trader’s ability to make a profit in pips. Major news events, such as economic data releases and central bank announcements, can cause significant price movements in the market, making it more difficult to capture small profits in pips.
In conclusion, the amount of profit in pips that a forex day trader should make per trade depends on various factors, such as their trading strategy, risk management, and market conditions. A general rule of thumb for forex day traders is to aim for a profit target of 10 to 20 pips per trade, based on their risk-reward ratio. It is important for traders to consider market volatility, liquidity, and news events when executing trades and setting profit targets. By having a clear understanding of these factors, traders can increase their chances of making consistent profits in pips.