Does the PIP value change according to the leverage used? If 1 PIP is 1 cent, why do people say "I made 10 pips, that is $100? How does 1 cent become $10 worth?
Its really confusing. The reason why I get discouraged to get into this field, but still yearn to.
The pip value doesn't change according to the leverage used, although the amount of leverage you have can affect your pip value.
On a standard forex account, whenever you buy or sell a currency pair, you specify how many 'lots' you want to trade. On a standard forex account, 1 lot is worth $100,000. In this case, on the EUR/USD 1 lot has a pip value of $10. Other currency pairs have different pip values for the same lot size.
Leverage is the amount of money you can play with. If you had a $10,000 account, with a 200:1 leverage, then you can effectively play with $2,000,000 or 20 lots. However, it would be really silly to play with the full $2,000,000 you have available because each pip would be worth $200 and you would wipe your account out by losing just 50 pips. Conversly, if you made 50 pips, you would double your account and claim to have made 100% in a day.
Hopefully you are beginning to see now that quoting how much you are making from forex in terms of a percentage is not useful because it is all relative.
Another lesson from ace's forex101 guide
ace
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On a standard forex account, whenever you buy or sell a currency pair, you specify how many 'lots' you want to trade. On a standard forex account, 1 lot is worth $100,000. In this case, on the EUR/USD 1 lot has a pip value of $10. Other currency pairs have different pip values for the same lot size.
Just so you don't get confused.. you don't have to have $100,000 to have that much in the FX market.. you only need an account of $10,000 to work with $100,000 in the FX market.. that is what leveraging is.
$10,000 account = $100,000 working money in the FX = $10/pip.
So, if I start off with $10K, what is my PIP value and what leverage do I play with? What is it if it is 20:1 and what is it if it is 100:1 and 200:1?
Thanks
Your pip value will vary from currency pair to currency pair, even if you trade the same number of lots.
If you have a 20:1 leveraged account, then you can play with $200,000, or 2 lots. So you would be using 50% of your capital ($5,000) per lot (as 5000x20=100,000). Each pip will be worth $10 on EUR/USD.
If you have a 100:1 leveraged account, then you can play with $1,000,000, or 10 lots. So you would be using 10% of your capital ($1,000) per lot (as 1000x100=100,000). Each pip will still be worth $10 on EUR/USD.
If you have a 200:1 leveraged account, then you can play with $2,000,000, or 20 lots. So you would be using 5% of your capital ($500) per lot (as 500x200=100,000). Each pip will still be worth $10 on EUR/USD.
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on a mini-account, 1 lot is worth $50 and i think that's what it means with 50:1... however, u used $50 from ur account, but then 1 pip still costs you $1, so from that, with a $50 plus leverage, you have actually controlled $10,000 of money that's not actually yours, that's the power of leverage. Without the leverage, 1 pip only costs .0001, but with the power of leverage, it costs $1 (1/.0001 = 10,000). (for more experienced and knowledgable traders, please correct me if i am wrong)...
Anyways, for a standard forex account, 1 lot costs $100 from ur account and 1 pip costs $10. so your $100 actually controlled $100,000 through the power of leverage.
Now as for monthly returns, for a smaller capital, it's easier to say that we've profited 100% for the month... say, $1000 capital can actually give you $1000 return for the month but then as my capital gets bigger, i still trade the same way i did even with a small capital, so having $5000 on the capital may still give me $1000 profit for the month... and that's no longer a 100%... i believe, it's not on the percentage that you need to look at but on the average of pip profit you have for the week or for the month... i don't know with others, but that's how i perceive it...
Anyways, for a standard forex account, 1 lot costs $100 from ur account and 1 pip costs $10. so your $100 actually controlled $100,000 through the power of leverage.
A standard account would be $10k as a starting principle.. and it would take $1000 to control $100,000.. Not $100..
Re: realistic returns
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