It seems that Rich at ForexProject.com has his hands full with everyone’s opinions on the best way to report profits and losses.  The whole thing appears more complex than it really is.

Rich’s original method is to count the pips on each lot, and report that as his pip total.  This is equivalent to reporting his profit in dollars, and just moving the decimal point to convert it to pips.  If I calculate the profits that I got from the Cable Glider over the past thirty days using this method, I come out with 1113 pips.  My profit was $11,130.  Let’s call this method the “profit” method.

If I remove the number of lots from the calculation, I come up with 149 pips.  It bears no resemblance to my trading profit total.  It does, however, reveal the magnitude of the market’s direction that I was able to capture;  had I been trading one lot each time, my profit would have been $1490.  We can call this method “market movement”.

Finally, I can choose to tie my trading performance to the amount of capital in my trading account at the beginning of the period…take my $11,130 gain and divide it by starting balance ($30,000) to come up with my ROI.

ROI = 37.1%Â

I’m far more interested in my ROI than the market movement.  It’s easy to construct an example where market movement doesn’t tell the story that I care about.

I trade one lot and the market moves 100 pips against me, I close the trade, then open a new trade using 3 lots and close the trade when the market moves 50 pips in my favor.  I have lost $1000 and then made $1500 for a net gain of $500.  Net market movement  negative 50 pips, but I have gained $500.  Toss in the presumption that I have $2000 in trading capital in this example, and my ROI is 500/2000 = 25%

This is why some people on Rich’s site are saying pips are useless….they’re not useless, but at the end of the day, we care about our ROI.