You now know most of the basics in online trading, so it is time to learn how to calculate profit and loss.
There are two methods for calculating your profit and loss, depending on the type of symbol you are trading.
Calculating Profit and Loss in Forex Trading
As you know currencies are traded in pairs. The first currency in the pair is called “Base currency”. The second currency in the pair is called “Profit currency”. For example if you trade EUR/USD, your base currency is the Euro and your profit currency is the US dollar.
As we already mentioned in “What is a pip in Forex Trading?”, it is very easy to calculate your profits in pips and convert it to money. Here you can see a more detailed breakdown of the calculation.
These are the variables you use in the calculation:
- Direction of the trade – Long or Short position (Buy or Sell)
- Open price
- Current price (or Close price for closed orders)
This is how you calculate your profit and loss in a Forex Position:
Direction x (Current price – Open price) x Volume = Profit/Loss
Long position: In the case of a long position, when the prices go up, you will have a profit, and when the prices go down you will have a loss. Therefore your Direction will be positive. Here are a few examples:
You have a Long position of 100 000 in EURUSD. Open price is 1.10245. Current price is 1.10465:
1 x (1.10465 – 1.10245) x 100 000 = 0.0022 x 100 000 = 220 USD
You have a Long position of 50 000 GBPUSD. Open price is 1.22450. Current price is 1.21660:
1 x (1.21660 – 1.22450) x 50 000 = -0.0079 x 50 000 = – 395 USD
Short position: In the case of a short position, when the prices go down, you will have a profit, and when the prices go up you will have a loss. Therefore your Direction will be negative (-1). Here are a few examples:
You have a Short position of 100 000 in EURUSD. Open price is 1.11235. Current price is 1.10789:
-1 x (1.10789 – 1.11235 ) x 100 000 = -1 x -0.00446 x 100 000 = 446 USD
You have a Short position of 150 000 GBPUSD. Open price is 1.21456. Current price is 1.21987:
-1 x (1.21987 – 1.21456) x 150 000 = -1 x 0.00531 x 150 000 = -796.5 USD