Learn How to Calculate Profit & Loss When Trading Forex

By Arman Logan

To make forex trading easier and more convenient, usually online trading platforms automatically calculate profit and loss of traders open positions. However, if you want to know how it is calculated, then I believe this article will be very useful for you.

I will explain you everything on the example, so you can better understand how the process works.
Let's assume that the current bid/ask for EUR/USD is 1.4616/19, which means that you can buy 1 euro for 1.4619 or sell 1 euro for 1.4616.

You decided that Euro is undervalued to US dollar and you want to execute this strategy. What you would do is buy Euros, while simultaneously selling dollars, and then wait for the exchange rate to rise.

Then you make a trade. In order to buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619). Remember, $1.4619 is the price you have to pay to buy one euro in my example.

Euro Becomes Stronger

Let's say that you were right and Euro becomes stronger to 1.4623/26. Now, if you want to make a profit you have to sell the euros that you have bought (100,000) at the current rate of $1.4623 - the price for one euro. If you do that you will get $146,230.

At beginning you bought 100k Euros at 1.4619 and paid $146,190. Then, when Ero became stronger you sold 100k Euros at 1.4623 and you got paid $146,230. If you do simple calculation, which is $146,230 - $146,190, you will see that you made a profit totalling $40.

Euro Weakens

In this example, I would like to show you, what would happen if Euro would go down. So again we are trading EUR/USD at 1.4616/19. And again you decide to buy 100,000 Euros and you pay 146,190 dollars (100,000 x 1.4619).

However, in this case Euro weakens to 1.4611/14. Now, in order to minimize your losses, you sell 100,000 Euros at 1.4611 and receive $146,110.

Let's summarize. You bought 100k Euros at 1.4619 and paid $146,190. However, because Euro went down, you sold 100k Euros at 1.4611 and got only $146,110. Again simple calculation, which is $146,190 - $146.110 = $80. In this case $80 dollars in the money you have lost.

Trading forex can be very difficult and complicated, if you don't understand how to analyze forex data and follow the forex trends. That's why I recommend you to trade forex with professional software, such as Forex Tracer which is developed to help anyone make money trading forex with automatic tools. You can learn more about Forex Tracer by clicking here