Calculating Profit & Loss (Forex Calculator)
Although the trading platform automatically does the profit and loss calculation for you in real time, it is important to understand how these equations are derived. Equations for calculating the major currency pairs: The equation for EUR/USD, GBP/USD, and AUD/USD [direct currency pairs] is as follows: P / L = ( closing rate - opening rate ) x lot size x number of lots The equation for USD/JPY, USD/CHF and USD/CAD [indirect currency pairs] is as follows: P / L = ( closing rate - opening rate ) / closing rate x lot size x number of lots In a 100,000 units/contract size account, 1 pip results $10 profit/loss in EUR/USD, GBP/USD, AUD/USD, approximately $9 in USD/JPY, and $8 in USD/CHF. In a 10,000 units/contract size account, 1 pip results $1 profit/loss in EUR/USD, GBP/USD, AUD/USD, approximately $0.9 in USD/JPY, and $0.8 in USD/CHF.
NOTE: Buy = Long = Ask = Offer ; Sell = Short = Bid
Calculation Example:
The current bid/ask price for EUR/USD is 1.2322/1.2325,
meaning to purchase every unit of Euro, you need 1.2325 units of
U.S. dollar or sell every unit of Euro, you need 1.2322 units of
U.S. dollar.
Let's assume that you decide the Euro is
undervalued against U.S. dollar. To profit from your strategy, you would
buy Euro (sell dollar) at 1.2325. Thus when the price of Euro rises, you would sell Euro (purchase U.S. dollar) for a profit.
You bought 100,000 units of Euro at 1.2325.
Some time later, EUR/USD price is at 1.2355/1.2358
just like you expected. So you decide to sell Euro (puchase
U.S. dollar) or close your position for a profit.
In this senario, your profit is 1.2355 - 1.2325 = 30 pips.
Equation: ( 1.2355 [ closing rate ] - 1.2325 [
opening rate ] ) x 100,000 [ unit / lot ] x 1 [ lot ] = $300
[ profit ]
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