Online Forex Trading
- Calculating Profit and Loss

Trading Currencies - Online Forex Trading - Calculating Profit and Loss

Online Forex Trading - Calculating Profit and Loss

Pretty much any online forex broker you choose will have a trading platform that automatically calculates your profits and losses for you. But I think it's important to understand the basic math behind it. It's a good way to make sure your broker is honest, plus it's just good to know.

Besides, calculating profit and loss is really simple. There's only two simple formulas to remember.

1. When USD is the quote currency (the second currency in a pair), the formula is:
  • Profit = Price Change in Pips X Units Traded

2. When USD is the base currency (the first currency in a pair), the formula is:
  • Profit = Price Change in Pips X Units Traded / Exit Price

Let's look at some real-life examples to help you understand.

Ad 1) First we'll look at an example when USD is the quote currency.

To keep things simple we'll assume the broker requires 1% margin, which means you can trade $100,000 in currency for only $1,000.

So let's say you are looking at EUR/USD which is currently trading at 1.2518/9. You predict the euro will rise in value against the euro so you execute a trade to buy euros, which means you also simultaneously sell USD.

You buy $100,000 units at 1.2519. Remember since you are buying you have to take the ask price, which is the second number in the quote.

Your calculations are correct and the price rises to 1.2532/3. You initiate a trade to sell EUR and buy USD. This time you use the bid price, which is 1.2532.

Since you bought at 1.2519 and sold at 1.2532 your profit was 17 pips, or 0.0017. Now we need to convert that into real money. So take your formula above:

Profit = Price Change in Pips X Units Traded


Profit = 0.0017 X 100,000 = $170.00

An easy rule to remember is that when trading a standard sized lot (100,000) of a currency pair in which USD is the quote currency, a pip is always equal to $10. 17 pips equals $170.

Ad 2) Now, let's look at an example where USD is the base currency.

We'll execute a buy of 100,000 units of USD/JPY at 117.22. The price rises and we sell at 117.35. We just made 13 pips.

To calculate our profit we use the second formula:

Profit = Price Change in Pips X Units Traded / Exit Price

Or, Profit = .13 X 100,000 / 117.35 = $110.78.

Nice and simple.


Browse Categories:
Stock Trading
Forex Trading
Commodity Trading
Options Trading
Day Trading
Technical Analysis
Real Estate Investing
Bonds Investing
Finance / Economics
For Your Trading Room
Online Forex Trading Tips
  Currency Trading  
  Introduction to Forex  
  Reading Forex Quotes  
  Understanding Pips  
  Types of Forex Orders  
  Understanding Margin and Leverage  
  Avoiding Failure in the Forex Market  
  Calculating Profit and Loss  
  Choosing a Forex Broker  
  Forex Trading vs The Stock Market  
  Forex - Fundamental Analysis  
  Technical Analysis  
  Fundamental vs Technical Analysis  
  Traits of Successful Forex Traders  
  More About Forex Trading...  
Online Commodity Trading Tips

Commodity Trading

  Intro to Commodities - Part 1  
  Intro to Commodities - Part 2  
  Commodity Exchanges  
  Financial Indexes  
  Commodity Types  
  Reading Commodity Prices  
  Commodities - Margins  
  Commodities - Leverage  
  Trading Coffee  
  Trading Silver  
  Trading Uranium  
  Trading Soybean  
  Trading Oil  
  More About Commodities Trading...  
Online Options Trading Tips

Online Options Trading

  Options 101  
  Calls and Puts  
  Options Trading 101  
  Options Trading 102  
  Options - Risk Management  
  How To Read Options Listings  
  Trading Strategies - Basic Concepts  
  Trading Strategies - Profit and Risk  
  The Greeks - Part 1  
  The Greeks - Part 2  
  Values and Prices - Part 1  
  Values and Prices - Part 2  
  More About Options Trading...  
Real Estate Investing
  Real Estate Investing  
  Getting Started in Real Estate  
  Questions To Ask Before Investing  
  Real Estate - Your First Time  
  Finding and Evaluating Property  
  Inspections Save You Money  
  Cheap Repairs, Big Profits  
  Keep Your Cash For A Rainy Day  
  Insurance and Risk Management  
  Managing Risk - Part 1  
  Managing Risk - Part 2  
  More About Real Estate Investing...