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.

When USD is the quote currency (the second currency in a pair), the formula is:

Profit = Price Change in Pips X Units Traded

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.

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

Or,

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.

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.

We Recommend Simple Forex >>

Recent Forex News

Technical Analysis

FX Technical Analysis
EURUSD Comment: Very slow work as the Euro tries to form an interim base against 50% Fibonacci retracement support. Momentum is neutral and very good futures volume on Tuesday's fall underlines the fact that consensus opinion is for a weaker Euro.
Forex Technical Analytics
The estimated test of key resistance range levels for implementation of short positions has not been confirmed, however, preserved low activity, suggests further rate range movement with no clear signs regarding planning priorities for today. Hence, we can assume probability of another test of close 1,0140/60 resistance levels, where it
Technical Analysis for Crosses
The pair soared yesterday affected by facing 88.6% of XA leg as we discussed earlier but it declined sharply again during the Asian session, where it is presently is very close to 88.6% once more. We are not sure if it intends to breach it to complete the suggested bullish
Daily Technical Analysis
The EURUSD slipped below my trend line support yesterday, but further bearish pressure was rejected and whipsawed to the upside, topped at 1.2762 and closed at 1.2720. The bias is neutral in nearest term but this fact force me to assume that the bullish correction remains intact. Immediate resistance at
Daily Technical Outlook
Former support around 1.2770 was tested and held, as I was expecting in my article yesterday, and downside pressure remains high. Euro's come back after the 1.2770 attempt was probably caused by ECB chief economist Juergen Stark who said that German banks need more capital. Support trend line coming from

Newsfeed display by CaRP

Fundamental Analysis

Morning Forex Overview
Renewed threats by Japan's Minister of Finance Yoshihiko Noda to take "decisive steps" to stop the rise in the yen failed to deter the market Thursday, but they at least stopped traders from pushing the currency to yet another 15-year high against the dollar.
Asian Market Update
Asian equity markets are trading mixed despite some modest gains in the US and EU bourses, even as the most heavily beaten down Nikkei225 is seeing some reprieve. Tokyo equities opened up by over 1.1% before paring some of those gains despite further escalation in intervention rhetoric by Japanese officials.
The Australian Economy Still Looks To Be Firing On All Cylinders
The CAD was in the spotlight overnight as the BOC hiked rates by 25bp to 1.0%, as expected, but held a slightly more hawkish tone in the accompanying statement than the market had been expecting. However, whilst saying that Canadian consumption and investment was expected to stay strong and that
Risk Aversion Subsides Briefly, Markets Consolidate!
The Dollar Traded weaker yesterday as risk aversion was in put on hold after concerns about the Euro zone faded on solid auction from some European Countries. US stocks also rallied as new stimulus proposals from Obama ahead of the US Mid-term elections were announced. In US the DJIA traded
BoE To Keep Both Interest Rate And APF Steady In September
BoE will release interest rate for the month of September where expectations are in favor of keeping both borrowing cost and APF quantity unchanged. The BoE has been keeping both interest rate at 0.50% and APF at 200 billion pounds recently despite the improvement witnessed recently. In the second quarter,

Newsfeed display by CaRP