For knowledgeable investors, currency trading presents a challenging and profitable opportunity.
Since the success or failure of a transaction is determined by the profits and losses (P&L) it generates, it is also a risky market, and traders must constantly be aware of their holdings. Use Forex Profit Calculator to understand how much you can earn on trading with different pairs, time periods and a lot more.
Because it immediately impacts the margin balance in their trading account, it is crucial for traders to understand their P&L.
Your margin balance will drop if prices move against you, leaving you with less money to trade with.
How to Determine Profit and Loss
The actual method of calculating profit and loss in a position is very simple.
If the trade was long GBP/USD in our previous example, the profit would be $150. The position size multiplied by the pip movement will result in the actual profit or loss.
Let’s examine an illustration:
Let’s say your position in the 100,000 GBP/USD currency pair is currently trading at 1.3147.
Prices increased by 15 pip if they moved from GBP/USD 1.3147 to 1.3162.
The 15-pip movement is $150 for a 100,000 GBP/USD position (100,000 x .0015).
Long position: If prices rise, a long position will result in a profit; if prices fall, a long position will result in a loss.
If the trade was long GBP/USD in our previous example, the profit would be $150.
In contrast, if the prices dropped from GBP/USD 1.3147 to 1.3127, it would have been a $200 loss (100,000 x -0.0020).
Short position: In the case of a short role, a gain would result from a price decline rather than an increase in price.
The same example would result in a $150 loss if we were short GBP/USD and prices increased by 15 pip.
$200 would be made if the prices decreased by 20 pip.
Getting Exchange Rates on the Market Every day of the week, traders and organizations buy and sell currencies.
One currency must be exchanged for another in order for a trade to take place.
British Pounds (GBP) must be purchased using another money.
Any currency will result in the creation of an exchange rate. The duplitrade autotrading platform is One Time Setup Software, Activate 24 Hr, No Knowledge Required
When purchasing GBP with USD, the exchange rate is for the GBP/USD pair.
Any of the top forex firms can provide access to these currency markets.
You’re unlikely to receive the market price that traders do when you change currencies at the bank.
In order to generate a profit, the bank or currency exchange house will markup the price when a currency conversion takes place, the bank or currency exchange firm will markup the price so they may earn a profit, as will credit cards and payment service providers like PayPal.
If the USD/CAD exchange rate is 1.33, the market is indicating that 1.33 Canadian dollars are needed to purchase one US dollar.
However, it can cost 1.37 Canadian dollars at the bank.
Their profit is the difference between the exchange rate they charge and the market rate.
Take the difference between the two exchange rates and divide it by the market exchange rate to determine the percentage discrepancy:
1.37 – 1.33 = 0.04/1.33 = 0.03.
To calculate the markup in percentage, multiply by 100: 0.03 x 100 = 3%. Assume a 50-pip rally moves the EUR/USD currency pair from $1.2160 to $1.2210 using the same exchange rate.
For 1 normal lot, the pip value is 8.22 EUR.
As a result, adding the pip value to the price change (8.22 EUR x 50) yields a profit of 411 EUR. You can enhance your trading experience with the duplitrade autotrading platform and a lot.
Additionally, you can multiply the trade size (in euros) by the pip movement (100,000 / 1.2160). (82,240 x 0.0050).
GBP is an account currency that isn’t part of the currency pair; let’s say the GBP/USD exchange rate is $1.3532.
Using the same EUR/USD exchange rate as before, a rise from $1.2160 to $1.2190 corresponds to a 30-pip movement.
For two mini lots, the pip value is 1.48 GBP.
Consequently, a 30-pip gain or loss corresponds to roughly 44 GBP (1.48 GBP x 30).