Forex trading is one of the most lucrative investment options available in the market. However, it comes with a lot of risks and requires a deep understanding of the market. Profit calculation is an essential aspect of Forex trading, and it is crucial to know the right approach to calculate the profit. In this article, we will discuss how to calculate profit with how many pips per day in Forex.
What is a pip?
Before we dive into calculating the profit, it is essential to understand what pips are. Pip stands for “percentage in point,” and it is a unit of measurement in Forex trading. A pip is the smallest price movement that a currency pair can make. It is usually represented by the fourth decimal place in the currency pair’s price. For example, if the EUR/USD currency pair moves from 1.1000 to 1.1001, it has moved one pip.
Calculating Profit with Pips
To calculate profit with how many pips per day, you need to understand two essential concepts: position size and pip value. Position size refers to the number of units of currency you are trading, while pip value is the value of one pip in your account currency.
To calculate your position size, you need to determine your risk per trade, which is usually a percentage of your account balance. For example, if you are willing to risk 2% of your account balance on a trade, and your account balance is $10,000, your risk per trade would be $200. You can then use this risk per trade to calculate your position size.
To calculate your position size, you can use the following formula:
Position size = Risk per trade / (Stop loss in pips x pip value)
For example, if your risk per trade is $200, your stop loss is 20 pips, and the pip value of your account is $1, the position size would be:
Position size = $200 / (20 pips x $1) = 10,000 units
Once you have determined your position size, you can then calculate your profit using the number of pips you earn per day. Let’s say you have a position size of 10,000 units and you earn 50 pips per day. To calculate your profit, you can use the following formula:
Profit = (Number of pips x position size x pip value) / 10
Using the above example, the profit would be:
Profit = (50 pips x 10,000 units x $1) / 10 = $500
This means that if you earn 50 pips per day with a position size of 10,000 units, you can expect to make a profit of $500 per day.
Conclusion
Calculating profit with how many pips per day is an essential aspect of Forex trading. It is crucial to understand the concepts of position size and pip value to calculate your profit accurately. By using the formulas mentioned above, you can calculate your profit with ease and make informed trading decisions. However, it is crucial to remember that Forex trading involves a lot of risks and requires a deep understanding of the market. It is therefore advisable to seek professional advice before investing in Forex trading.
