# How to properly calculate the return of a trade?

##### Junior member
10 1

I was wondering if you guys could help me to better understand how to calculate the returns of a trade. I have seen a lot of people state they risk 2% per trade etc but lets just run through an example.

I am trying to create a new trading plan for myself which will attempt to make lots of small scrapes of 10 point here and there throughout the day.

I have opened up a demo account on IG to practise this trading plan. So the account balance was £10,000. I shorted the Euro at 8449 and closed at 8438.3 for a profit of £10.70 as I was betting a £/point. The margin to open the trade was around £280 I believe.

How would I calculate the correct return for the trade as I would like to compare the profit to the risk not the account which is like 0.1%. I guess I am confused if the margin should be used? or should I compare it to the stop loss risk?

Last edited:
C

#### cantagril

0 0

I was wondering if you guys could help me to better understand how to calculate the returns of a trade. I have seen a lot of people state they risk 2% per trade etc but lets just run through an example.

I am trying to create a new trading plan for myself which will attempt to make lots of small scrapes of 10 point here and there throughout the day.

I have opened up a demo account on IG to practise this trading plan. So the account balance was £10,000. I shorted the Euro at 8449 and closed at 8438.3 for a profit of £10.70 as I was betting a £/point. The margin to open the trade was around £280 I believe.

How would I calculate the correct return for the trade as I would like to compare the profit to the risk not the account which is like 0.1%. I guess I am confused if the margin should be used? or should I compare it to the stop loss risk?

Also as a side question for those who are interested should the stop loss be put an equidistant amount to the target profit? for example if I am aiming for 10 points should the stop loss be 10 points or should it be less or more than 10 points?

There's a great deal of information about just this subject available for free from many different sources....including T2W. Try looking at these two first and should lead you into other essentials as well:

https://www.babypips.com/learn/forex/reward-to-risk-ratio

#### tomorton

##### Legendary member
8,434 1,363
........

Also as a side question for those who are interested should the stop loss be put an equidistant amount to the target profit? for example if I am aiming for 10 points should the stop loss be 10 points or should it be less or more than 10 points?

Placing the TP 10 pts ahead of entry and the SL 10pts behind gives you a potential risk:reward of 10:10, i.e. 1:1. For many traders this is their minimum r:r, and probably for most new traders.

Bear in mind this is just potential r:r. So it might be quite easy for price to reach the TP at 10pts ahead, at some times on a longer time-frame it might be quite easy for it to reach a TP 100pts ahead. Use a volatility indicator such as ATR to try to gauge how probable it is that price will reach your TP on this market within a specified time period. This is where focusing on one specific strategy on one specific market rally pays back the screen time involved.

Remember you obviously cannot simply acquire a huge r:r of 1:5 simply by pushing your TP out to 50pts.

10 1
Thanks guys

M

#### member588978

0 0

I was wondering if you guys could help me to better understand how to calculate the returns of a trade. I have seen a lot of people state they risk 2% per trade etc but lets just run through an example.

I am trying to create a new trading plan for myself which will attempt to make lots of small scrapes of 10 point here and there throughout the day.

I have opened up a demo account on IG to practise this trading plan. So the account balance was £10,000. I shorted the Euro at 8449 and closed at 8438.3 for a profit of £10.70 as I was betting a £/point. The margin to open the trade was around £280 I believe.

How would I calculate the correct return for the trade as I would like to compare the profit to the risk not the account which is like 0.1%. I guess I am confused if the margin should be used? or should I compare it to the stop loss risk?

Also as a side question for those who are interested should the stop loss be put an equidistant amount to the target profit? for example if I am aiming for 10 points should the stop loss be 10 points or should it be less or more than 10 points?

Set an appointment with your family doctor in London to have your blood checked for the common disease called "thinking small begets small begets perennial jail"

Report the medicine prescribed when you return

M

#### member588978

0 0
Not my guru or any such thing but I agree 100% with the concept as I use it in my own life. Thinking small is the worst poison there is.

M

#### member588978

0 0
How to properly calculate the return of a trade?

taken to a higher level:

Nett profit after tax and expenses from trading for the year = X
#hours screen time including preps for real time trades = Y

X/Y = \$?

You want \$? to shoot thru' the roof. X/Y=200 should be a bare minimum acceptable to any trader worth his salt. If you can't do this, you're a bum.

You will quickly deduce that a TREND RIDER aka SURFER can nail X/Y > 1,500

Then it would follow very fast that because the denominator is generally fixed for a trend surfer, the greater the account size, the greater the X/Y

For the real astute trend surfers who also have sizable capital accounts you enter the zone of sheer sybaritic pleasure .... the #hours spent in analysis in the bend in the old trend + the 5 minutes per day required to just view your positions and then bugger off to the beach 365 days per year (SAT + SUN included for research) ............ reduces the denominator to such a degree that X/Y zooms to the moon and has the look of INFINITY. Adjusting just that one lever can take a trend surfer into the realm of INFINITY when he gets real good and therefore his hours of bend in the trend analysis approach zero - that be the goal = ideal scene = something the trader should strive for.

Becoming a trader to equal a McDonald's job is a so worthless that such traders should be shot on the spot.

The true Alpha Male trader resides in the supremely high X/Y ratio zone.

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