Forex Trading: Profit and Loss Calculation

You can calculate a position’s profit and loss by understanding pip value and position size. However, you must factor in swap rates (if open trades are left open overnight) and commissions to arrive at a final profit/loss number.

Another crucial concept to grasp is that if a winning or losing deal has not been liquidated, the profit or loss is unrealized profit/loss (possible profit or loss). To realize profit or loss in your trading account, you must close a trade. The profit or loss can then be calculated.

Profit and Loss Calculation:

Multiplying the position size (units traded) by pip movement, or simply multiplying the pip value by pip movement, is the basic calculation. While many people appreciate the convenience of a Forex Calculator, it is critical to grasp the mechanics of the calculation.

If the quote and account currencies are the same (USD).

Consider a 20-pip increase in EUR/USD from $1.2160 to $1.2180. Because a normal lot size in Forex is 100,000 units, you would have made 600 USD if you had purchased three lots and closed the position (300,000 x 0.0020). Multiplying the pip value by the price movement is another way to do it (30 USD x 20 pips).

The same price movement gets 60 USD if you enter three mini lots (30,000 units) (30,000 x 0.0020 or 3.00 USD [pip value] x 20 pips). In the same position, a 30 pip drop in EUR/USD would result in a loss of 90 USD.

Trading the EUR/USD with a euro-denominated account.

Assume a 50-pip rally increases the currency pair from $1.2160 to $1.2210, using the same EUR/USD exchange rate. One normal lot is worth 8.22 EUR in pip value. As a result, multiplying the pip value by the price movement (8.22 EUR x 50) yields a profit of 411 EUR.

You may also use pip movement to double the trade size (in euros [100,000 / 1.2160]). (82,240 x 0.0050).An account currency not included in the currency pair (GBP) – assume the GBP/USD rate is $1.3532.

A rally from $1.2160 to $1.2190 equals a 30-pip advance, using the same EUR/USD rate as before. For two mini lots, the pip value is 1.48 GBP. As a result, a 30-pip gain or loss equals around 44 GBP (1.48 GBP x 30).

Profit/loss can alternatively be calculated by multiplying the trade size (in GBP [20,000 / 1.3532]) by the pip movement (14,779 x 0.0030).