How to conver Pips to percent gained/lost?

[Maira]

Hello,
I have problem figuring out how to convert pips into percent gained/lost of account. What if someone says that he made 1000 pips in a month, so what percent of his account increased or decreased in that month?

Or what if someone claims that he makes 200 pips per day. So by what percent his account appreciates each day?

Please answer with examples so that I may understand clearly.

Please help

[SithJawa]

% gained or lost has nothing to do with the amount of pips someone has gained or lost, l shall explain:

there are three factors needed to determine the money gained or lost by a trader

1. The average W/L of his trading
2. The Risk to Reward Ratio of his trading
3. And the % of his account that he risks per trade

for instance lets say i trade an EMA cross system that has a win rate of 50%, that is the first piece of the puzzle

And with this system i set my stop loss to 25 pips and my take profit to 50 pips (meaning i have a risk reward of 1:2, meaning for every dollar i am risking i am trying to gain 2)

And with every trade i set my lot size to 5% of my account size (meaning if i have a $1,000 account i will risk $50 per trade, ie 5%), so if i had a $1,000 account i would trade with .2 lots per trade (because 5% of $1,000 is $50 risked per trade, so each pip of my stop loss which is the most i can lose needs to be worth 2 dollars)

so my W/L is 50%, my RR is 1:2, and i risk 5% per trade, so lets say i make 50 trades in a month

i win 25 trades and i lose 25 trades, each loss i lose 5%, and each win i gain 10% (because i risk 5% per trade and i aim to make double that on my wins, ie 10%), so my wins bring my account up 250%, and my losses bring it down 125%, meaning at the end of the month i am left with a profit of 125% my total account size

[Clint]

Hello, Maira, and welcome to this Forum.

In order to calculate the percentage gain in an account due to a particular pip gain, we need more information.

Let's use a dollar-denominated account as an example. And, to keep things simple, let's say that the pip gain we are discussing represents the gain on a single trade. For example, SHORT 3 mini-lots of EUR/USD for a gain of 200 pips.

In addition to the pip gain, we need to know the dollar-value of one pip (which we can figure from the information given above), and we need to know the person's account balance. Let's say that this trader's account balance (prior to this trade) was $5,000.

Now, we have the required information. The calculation would be done this way: In a dollar-denominated account, the pip-value for the EUR/USD is $1 per pip, per mini-lot. This trade involved 3 mini-lots. Therefore, the pip-value for this trade is $3 per pip. The trade netted 200 pips in profit, which is worth $600 total for the trade.

$600 ÷ $5,000 = 0.12 =12%, which is the percentage gain you wanted to know.

That calculation was easy enough (given the necessary information), because it was based on just one trade. But, what if the trader made a total of 15 trades --- some of them winning trades and some of them losing trades --- in various currency pairs, with different position sizes, over a period of 1 week, with a net gain for the week of 200 pips. How would you figure the percentage gain in the account over that 1 week period, resulting from that 200-pip gain?

This becomes a huge bookkeeping chore, because you have to make 15 separate calculations (like the one we did above for the individual trade), total the dollar gains and losses for the 15 trades, and divide this total by the account balance prior to the first of these trades.

To make matters even more complicated, it's likely that the various currency pairs traded in this example have different pip-values, which would have to be separately determined. (The EUR/USD, USD/JPY, and USD/CHF, for example, all have different pip-values).

As a general rule, when you hear someone say that he/she made x-number of pips on a particular trade, you simply will not know what that pip gain amounts to in dollars. And you simply will not be able to calculate the percentage gain in that person's account.

[Maira]

Thanks a lot for such clear illustrations. I fully understood it

Few more questions:
1. If pips do not represent the percent gained/lost, then why forex traders are over-obsessed with the pips acquired?
2. How can one go short EUR/USD when you only have USD as your accounts' currency? How can you sell Euro which you have not bought?
I am sorry if I sound naive.

[Clint]

1. If pips do not represent the percent gained/lost, then why forex traders are over-obsessed with the pips acquired?

In currency trading, nothing happens until some pips are gained.

Price movement, measured in pips, is what we speculate on. If you like more direct language, it's what we BET on.

How much money you earn betting correctly on a price move depends on (1) how big a price move you capture, and
(2) how big a bet you placed on that price move.

If you have the mistaken idea that pips are some sort of imaginary unit of measurement, allow me to correct you.

A pip is a unit of price. When you look at the current quoted price for a currency pair, you are looking at a price in dollars, or euro, or sterling, or yen, etc. And the last (or next to last) digit to the right in that price is a pip, which is a fraction of that price.

Example: let's say the current price of the GBP/USD pair is 1.56789 (just to make up a number). What does that six-digit number mean? It means that, right at this moment, £1 = $1.56789. That's one dollar, fifty-six and a fraction cents. The fraction, 0.00789, is 78.9 pips. So, in this pair, one pip is a fraction of a U.S. dollar.

In the USD/CHF pair, one pip is a fraction of a Swiss franc. In the EUR/GBP pair, one pip is a fraction of a British pound.

If you and I each earn a 50-pip profit trading the EUR/USD, we may or may not have earned the same dollar-profit. That depends on your position size and my position size. If your position was 10 standard lots, and my position was 1 micro-lot, then you earned $5,000 on your 50-pip gain. But, I earned only $5 on the same 50-pip gain.

Suppose someone asked you how much the EUR/USD went up, and you said "It went up $5,000." And then that person asked me the same question, and I said "The EUR/USD went up $5". What a ridiculous conversation. It's like we're all speaking different languages.

On the other hand, if you said "The EUR/USD went up 50 pips", and I said "That's correct, it went up 50 pips", then our conversation makes sense, because we have a common unit of measurement for price moves --- pips.

To go back to where we started, nothing happens until some pips are gained.

2. How can one go short EUR/USD when you only have USD as your accounts' currency? How can you sell Euro which you have not bought?

Fasten your seatbelt. This may be a bumpy ride for you.

In this market (the retail spot forex market), we do not buy or sell any currency, or any currency pair, at any time. Period. There is no buying or selling. Furthermore, there is no money-lending. When you trade on margin (using leverage), your broker does not lend you money. Nor does anyone else lend you money in this market, ever. Period.

If those concepts are new to you, then you need to study them and work with them, until they become part of your brain.

You will constantly hear forex traders talking about buying and selling. I even use those terms myself, from time to time, because it's easy and I'm lazy. But, it's not accurate. And, to the extent that it misleads newbies, I shouldn't do it. You'll even hear some traders try to explain that in a forex trade you buy one of the currencies, and sell the other one. Rubbish. There's no buying or selling of currencies in the forex market.

So, if we don't buy anything, and we don't sell anything, just exactly what do we do?

We speculate on price moves. Or, as I prefer to say, we bet on price moves. When you place a bet, you don't have to own the thing you are betting on. If you go to the racetrack and bet on a horse, you don't have to buy the horse --- you just plunk down your $2 (or whatever) and make your pick.

It's the same in the forex market. In order to go LONG or SHORT (what the un-informed call "buying" and "selling"), you don't have to own any of the currencies involved. You just speculate (bet) on how currency A is going to change in price compared to currency B.

If you have a dollar-denominated account, then everything is done in dollars: Your balance, equity, margin used, available margin, and your profits and losses are all stated in dollars --- regardless of the currency pairs you are trading.

Think of it this way: Your bets are all placed in dollars. And, when you win, your profits are paid to you in dollars.

[FrancesWilliams65]

Great response post Clint, thank you for doing so. really good explanation to break down the idea behind speculaltion and the myth of the 'buy' and 'sell' terminology.

[Dominator4fx]

Fasten your seatbelt. This may be a bumpy ride for you.

In this market (the retail spot forex market), we do not buy or sell any currency, or any currency pair, at any time. Period. There is no buying or selling. Furthermore, there is no money-lending. When you trade on margin (using leverage), your broker does not lend you money. Nor does anyone else lend you money in this market, ever. Period.

If those concepts are new to you, then you need to study them and work with them, until they become part of your brain.

You will constantly hear forex traders talking about buying and selling. I even use those terms myself, from time to time, because it's easy and I'm lazy. But, it's not accurate. And, to the extent that it misleads newbies, I shouldn't do it. You'll even hear some traders try to explain that in a forex trade you buy one of the currencies, and sell the other one . Rubbish. There's no buying or selling of currencies in the forex market.

So, if we don't buy anything, and we don't sell anything, just exactly what do we do?

We speculate on price moves. Or, as I prefer to say, we bet on price moves. When you place a bet, you don't have to own the thing you are betting on. If you go to the racetrack and bet on a horse, you don't have to buy the horse --- you just plunk down your $2 (or whatever) and make your pick.

It's the same in the forex market. In order to go LONG or SHORT (what the un-informed call "buying" and "selling"), you don't have to own any of the currencies involved. You just speculate (bet) on how currency A is going to change in price compared to currency B.

If you have a dollar-denominated account, then everything is done in dollars: Your balance, equity, margin used, available margin, and your profits and losses are all stated in dollars --- regardless of the currency pairs you are trading.

Think of it this way: Your bets are all placed in dollars. And, when you win, your profits are paid to you in dollars.

In Forex markets almost 90% of the trades are speculative in nature. This means that we have actual trades which involve transfer of currency to less than 10%

[Clint]

....so what do you suggest how to keep trade journals/statistics on a individual and a monthly basis?

As I understand the question raised in the original post, Maira was asking how to determine the percentage gain in someone else's account, based on that person's claim of pips gained.

If that other person furnishes enough additional information, it is possible to calculate his/her percentage gain.

But, most traders do not routinely post their private financial information on the internet. So, in most cases, if someone tells you simply that he/she made x-number of pips on a trade, you won't be able to translate those pips into a dollar-profit figure.

On the other hand, if that person also tells you the position size involved, then you can calculate the dollar profit; but, you won't know the percentage increase in that person's account.

Finally, if that person were to tell you (1) pips gained, (2) position size, and (3) account balance prior to the trade, then you could calculate the percentage gain in the account.

If the pips which were gained resulted from a number of trades --- especially a number of trades of different sizes, in different pairs --- then your calculations would become the "bookkeeping chore" that I referred to in my previous post.

In the case of your own account, your trading station allows you to download a detailed account report anytime, with a few clicks of your mouse. This report gives you complete information on every trade, every deposit, every withdrawal, and every interest credit or debit, for the specified report period. And it gives you starting and ending account balances, plus details of any positions which happen to be open at the time the report was prepared.

With all that information spread out in front of you, it's just a matter of a few minutes with a pocket calculator to figure net P/L per day, per week or per month, and to calculate a percentage gain/loss in your account for a particular trade, for a particular set of trades, for a given day or week, etc.

As for keeping a journal, I'm the worst person to ask. I simply don't spend time recording information that I can download from my trading platform. I'm not suggesting that my way is the best way --- it's just my way.

[Clint]

In Forex markets almost 90% of the trades are speculative in nature.

Well, that 90% figure may or may not be accurate, depending on which slice of the currency market you are referring to. Would you care to cite your source for that figure?


Here's how the overall market is divided (figures taken from the BIS 2010 Triennial Survey, and rounded):

• $4 trillion per day traded in the worldwide foreign exchange market

(this total includes the spot currency market and all of the various currency derivatives markets)

• $1.5 trillion per day traded in the spot currency (forex) market

(this is 37.5% of the overall currency market)

• $1.365 trillion per day traded in the institutional spot forex market

(this is 91% of total spot forex, and 34.1% of the overall currency market)

• $0.135 trillion per day (= $135 billion per day) traded in the retail spot forex market (our market)

(this is 9% of total spot forex, and 3.38% of the overall currency market)

Which segment of the overall market are you referring to?

This means that we have actual trades which involve transfer of currency to less than 10%

I don't think that statement can be supported. For the sake of discussion, let's assume that your 90% figure, above, is correct.

Assuming that ALL non-speculative currency transactions involve real money transfers, then the question becomes what portion (if any) of speculative currency transactions also involve real money transfers.

The largest speculative trades occur between mega-banks at the interbank level of the market, and those trades absolutely are booked as real money transactions.

And, large hedge funds, large private equity funds, and high-net-worth individuals who have direct access to one or more of the banks in the interbank network also do speculative trading, and their speculative trades are booked as real money transactions, as well.

So, at least a portion --- and possibly a very large portion --- of speculative trades do involve real money transactions (what you referred to as "transfer of currency").

Again, would you care to cite your sources?