Tips: Forex How To Calculate Profit And Loss

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It is one thing to know about Forex trade, another is to know how to calculate your profits and losses. However most of the trading platform offers their members a dedicated page that has profit calculator

The success or failure of a trader is measured in terms of the profits and losses (P&L) on his or her trades, when you close out a trade, take the price (exchange rate) when selling the base currency and subtract the price when buying the base currency, then multiply the difference by the transaction size. That will give you your profit or loss.

Calculating Profit and Loss

The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and by how many pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement.

Example:

Assume that you have a 100,000 GBP/USD position currently trading at 1.6240. If the prices move from GBP/USD 1.6240 to 1.6255, then the prices have move up by 15 pips. For a 100,000 GBP/USD position, the 15 pips movement equates to USD 150 (100,000 x 15).

To determine if it’s a profit or loss, we need to know whether we were long or short for each trade.

Long position: In case of a long position, if the prices move up, it will be a profit, and if the prices move down it will be a loss. In our earlier example, if the position is long GBP/USD, then it would be a USD 150 profit. Alternatively, if the prices had moved down from GBP/USD 1.6240 to 1.6220, then it will be a USD 200 loss (100,000 x -0.0020).

Short position: In case of a short position, if the prices move up, it will be a loss, and if the prices move down it will be a profit. In the same example, if we had a short GBP/USD position and the prices moved up by 15 pips, it would be a loss of USD 150. If the prices moved down by 20 pips, it would be a USD 200 profit.

The following table summarizes the calculation of P&L:

A trader can avoid losses by learning currency trading strategies

Another Example

Assume you buy Euros at $1.2178 per Euro and sell Euros at $1.2188 per Euro. The transaction size is 100,000 Euros. To calculate your profit or loss, you take the selling price of $1.2188, subtract the buying price of $1.2178 and multiply the difference by the transaction size of 100,000.

($1.2188 – 1.2178) X 100,000 = $100

In this example, you would have a $100 profit from this transaction.