How forex profit is calculated
How is forex profit calculated
Calculating Profit and Loss
How forex profit is calculated? The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. Therefore, the actual profit or loss will be equal to the position size multiplied by the pip movement.
Let’s look at an example:
Assume that you have a 100,000 GBP/USD position currently trading at 1.3147. If the prices move from GBP/USD 1.3147 to 1.3162, then they jumped 15 pips. For a 100,000 GBP/USD position, the 15-pips movement equates to $150 (100,000 x .0015).
Therefore, to determine if it’s a profit or loss, we need to know whether we were long or short for each trade.
Long position:
In the case of a long position, if the prices move up, it will be a profit, and if the prices move down it will be a loss. In our earlier example, if the position is long GBP/USD, then it would be a $150 profit. Alternatively, if the prices had moved down from GBP/USD 1.3147 to 1.3127, then it will be a $200 loss. (100,000 x -0.0020).
Short position:
In the case of a short position, if the prices move up, it will be a loss, and if the prices move down it will be a profit. For example, if we had a short GBP/USD position and the prices moved up by 15 pips, it would be a loss of $150. If the prices moved down by 20 pips, it would be a $200 profit.
Calculating loss
Firstly, you see that the current rate for USD/JPY is 115.00/115.05 (where 115.00 is the selling price and 115.05 is the buy price. The spread is 5.
After, you decide to buy 10,000 USD at 115.05.
This means you bought 10,000 USD and sold 1,150,500 JPY (10,000 USD * 115.05 = 1,150,500 JPY).
Then, the market rate of USD/JPY falls to 114.45/114.50 and you decide to sell back 10,000 USD at 114.45 (10,000 USD * 114.45 = 1,144,500 JPY).
You bought 10,000 USD for 1,150,500 JPY and sold 10,000 USD back for 1,144,500 JPY.
Your loss is calculated as follows: 1,150,500 – 1,144,500 = 6,000 JPY.
However, note that your loss is in JPY and must be converted back to dollars.
To calculate this amount in USD:
6,000 JPY / 114.45 = $52.42 USD or
6,000 JPY *1/114.45 = $52.42 USD.
