Lot of new traders think that one has to make thousand pips every month to do well in FX. In this article, I would like to show you that it is a myth and you don’t even need 100s of pips per month to do well in FX.
Let us consider that I have an account of $1000 to start with and I have a goal to make 5% every month which is a great return (think professional fund managers do around 10% per year on average). I only risk 1% per trade to make 1% of my account value. This will result in 1:1 risk/reward ratio. Since I day trade, my trade will only risk 10 pips to make 10 pips. As I only risk 1% of my account value, that would come to $10 risk per trade. Since, I am risking 10 pips to make 10 pips, I would need to open 0.1 lot (mini lot) per trade. If a trade is successful, I make $10. Otherwise, I lose $10. Now, to make 5% of my account per month, I only need to make 50 pips net profit per month as 50 pips x 0.1 lot = $50. As I day trade for around 4 hours every day, I can easily do around 2-3 trades every day totaling about 50 trades per month. The following table shows the math of compounding the results over a course of 12 months. As you can see, with compounded 5% returns per month, one can earn around 80% per year. Another thing to note is that you only need a win percentage of 55 to make 5% return per month. Of course this is just an example as you would never consistently make exactly 5% per month as some months will be more than 5% and some will be less. The only point I am trying to make here is that you don’t need a whole lot of pips every month to do well in FX. I hope it helps some of the new traders. If you have any questions, please let me know.