How to Calculate Profit & Losses in FOREX
Forex, short for foreign exchange, is the largest market in the world. Every day, traders exchange trillions of dollars worth of currency in the Forex market. Liquidity, leverage and ease of accessibility are some of the major factors that entice speculators to trade the foreign exchange markets.
Calculating profit and losses in Forex can seem like a daunting task. Many different currencies are traded in the Forex markets and market participants trade contracts of varying sizes. Additionally, Forex offers the potential for leverage, meaning that you can control a contract for a fraction of its full value. Despite all these factors, you can calculate profit and loss by following a few simple steps.
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Instructions
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Identify the contract size. A standard Forex contract consists of 100,000 units of the base currency. For example, one EUR/USD contract represents 100,000 Euros valued in terms of U.S. Dollars. A mini contract is one tenth of the size of a standard contract and represents 10,000 units of the base currency.
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Find the pip value. For a currency pair where the U.S. Dollar is the quoted or second currency, the value of a pip is $10 for a standard contract and $1 for a mini contract. In this case, just add up the number of pips you gained or lost to find the profit or loss for a mini contract. Multiply the number of pips by 10 to find the profit or loss for a standard contract.
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When the U.S. Dollar is the base currency, you will need to do some more calculations to figure out profit or loss. In this case, just take the take the difference between your entry price and exit price and then divide that number by the current exchange rate to find your profit or loss in dollars.
For example, say you buy a standard USD/JPY contract at a price of 88 and exit the market at a price of 88.25. You've made .25 x 100,000 = 25,000 Yen. Using the current market rate to convert this amount into dollars, you get 25,000/88.25 = 283.29. In this example, you made a profit of $283.29 on your trade.
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Tips & Warnings
Only trade Forex with money you can afford to lose.
