Many new traders are attracted to the Forex market because it provides unlimited profit potential… a good trader can make anywhere from a few thousand dollars to a tens of thousands of dollars of profits in a single day. Unfortunately because of this way of thinking, many new traders mistakenly use dollar amounts to measure the success of a trader.
But while dollar amounts of profits can be a general indicator of trading success, a more accurate measure would be the number of pips made by the trader. Allow me to explain why…
Many people don’t realize this, but you can still be a very rich trader even if you only make 10 pips a day.
Do you know why?
It’s because pips are essentially a profit “multiplier”. What this means is that 10 pips can make you $10, $100, $1,000 or even $10,000! It all depends on the size of your trading lot.
Can you see where I’m coming from?
If you trade with one standard lot, a 10 pip gain will earn you $100. But if you trade with ten standard lots, the same 10 pip gain will instead earn you $1,000! This is what I mean when I say that pips have a “multiplier” effect.
You see, two different traders can each make 10 pips a day, but have very different profits! Again, it all depends on their trading lot size. One trader can make only $200 a day, and another trader making $1,000… but does that mean that the second trader is the better trader?
If you’ve been following my argument, you’ll know that the answer depends on how many pips each trader makes… If Trader A made $200 by gaining 20 pips, he is a better trader than Trader B who made $1,000 by gaining only 10 pips.
This is because Trader A can easily be more profitable simply by increasing his lot size!
