It is vital that you know how to calculate profit and loss in forex trading and fortunately the process is a fairly simple one. Profits and losses can be calculated both when the trade is still open and when the trade has been closed.
When you want to calculate your profit and loss in forex trading you simply take the price when you sell the base currency and take away from it the price you paid when you bought the base currency. Then you take the difference between these two prices and multiply it by the size of the transaction.
So, when you want to know how to calculate profit and loss in forex trading, remember that is simply: selling price in base currency – buying price in base currency X size of trans action size = amount of profit or loss.
Here are two examples of how to calculate profit and loss in forex trading:
You buy Euros at £ 1.1821 and sell them at £ 1.1831. The size of the transaction is 100,000. So (£1.1831 – £1.1821) X 100,000 = £100. So you have a profit of £100.
The second example of how to calculate profit and loss in forex trading goes like this:
You sell 100,000 US dollars at £1.5367 after buying them at £1.5377. If you apply the calculation given above you will see that you have made a loss of £100.
Once you know how to calculate profit and loss in forex trading then you will be able to work a running score on your open trades. Simply substitute the current bid or ask rate for your closing price and you will know where the trade stands.
Always remember to either add any dealer commission to your losses or subtract it from your profits to reach your final figure.
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