Forex
trading
You can calculate a position’s profit and loss by understanding pip value and position size. However,you must factor inswap rates (if open trades are left open overnight) and commissions to arrive at a final profit/lossnumber.
Another crucial concept to grasp is that if a winning or losing deal has not been liquidated, theprofit or loss isunrealized profit/loss (possible profit or loss). To realize profit or loss in your trading account,youmust close atrade. The profit or loss can then be calculated.
Profit
and
loss
calculation
Consider a 20-pip increase in EUR/USD from $1.2160 to $1.2180. Because a normal lot size in Forex is100,000 units, youwould have made 600 USD if you had purchased three lots and closed the position (300,000 x 0.0020).Multiplying the pipvalue by the price movement is another way to do it (30 USD x 20 pips).
The same price movement gets 60 USD if you enter three mini lots (30,000 units) (30,000 x 0.0020 or3.00 USD [pip value]x 20 pips). In the same position, a 30 pip drop in EUR/USD would result in a loss of 90 USD.
Assume a 50-pip rally increases the currency pair from $1.2160 to $1.2210, using the same EUR/USDexchange rate. Onenormal lot is worth 8.22 EUR in pip value. As a result, multiplying the pip value by the pricemovement (8.22 EUR x 50)yields a profit of 411 EUR.
You may also use pip movement to double the trade size (in euros [100,000 / 1.2160]). (82,240 x0.0050).An accountcurrency not included in the currency pair (GBP) – assume the GBP/USD rate is $1.3532.
A rally from $1.2160 to $1.2190 equals a 30-pip advance, using the same EUR/USD rate as before. Fortwo mini lots, thepip value is 1.48 GBP. As a result, a 30-pip gain or loss equals around 44 GBP (1.48 GBP x 30).
Profit/loss can alternatively be calculated by multiplying the trade size (in GBP [20,000 / 1.3532])by the pip movement(14,779 x 0.0030).
