How do I calculate my profit in forex?

For well-prepared and educated traders, forex currency trading can be a daunting but potentially profitable endeavor. Because the success or failure of a trade is determined by the profits and losses (P&L) incurred, traders must constantly monitor their positions, as the forex market contains risks.

Because it directly impacts the margin balance in their forex trading account, traders must be familiar with their profits or losses. For example, if prices move against you, your margin balance drops, and you will have fewer funds to use for trading.

Calculator for Forex Profit

It’s critical to understand exactly how much money you might earn or lose based on the trade’s outcome before opening a position. That’s why the majority of online forex brokerages offer forex trading widgets, including a profit calculator.

With the profit calculator, you simply choose the currency pair you want to trade and decide whether you are purchasing or selling it to get an idea of the possible profit or loss of the transaction. You can select the currency in which you want to view the results after you have established the open and close prices.

Factors like unexpected volatility or significant announcements and news about the market could affect the actual outcome of a trade.

Additionally, keep in mind that different types of accounts use different commissions, swaps, and spreads. You need to use the information above as a guide in addition to any other risk management strategies.

Forex profits and losses (P&L): realized and unrealized

Real-time market marking is applied to all of your foreign exchange trades. Your trades’ unrealized P&L is displayed by the mark-to-market computation. In this context, “unrealized” indicates that the transactions remain open and subject to your judgment.

The amount you can close a trade for at that particular moment is known as the mark-to-market value. In a long position, the value at which you can sell is usually determined by the mark-to-market calculation. The level of price that you can purchase to close a short position is known as the closing price.

The P&L won’t be realized until a position is closed. The closing of trade results in the realization of the profit or loss, also referred to as realized P&L. A profit is indicated by an increase in the margin balance, and a loss by a decrease in it.

Your account’s total margin balance will always be the same as the total of your first margin deposit, realized profit and loss, as well as unrealized profit and loss. The unrealized P&L is closely connected to the market, so it is subject to constant fluctuations as the market value of your investments will keep changing. This is the reason why the margin balance also fluctuates.

Doing a profit and loss calculation

The actual computation of a position’s profit and loss is very simple. The size of the position and the number of pip movements in the price are required to determine the profit and loss of a position. The trading position size multiplied by the pip movement will determine the actual profit or loss.

For example, let’s assume that you have opened the 100,000 GBP/USD position at 1.3147. If it went from GBP/USD 1.3147 to 1.3162 it means that the price jumped 15 pips. The 15-pip movement for a 100,000 GBP/USD position is equivalent to $150 (100,000 x.0015).

We need to know if we were long or short on each trade to assess whether there was a profit or loss.

Long position

If prices move higher, there will be a profit; if they move lower, there will be a loss. In the previous example, there would have been a $150 profit if the position had been longer. Alternatively, there would have been an additional $200 loss (100,000 x -0.0020) if the prices had dropped from 1.3147 to 1.3127.

Short position

A short position will result in a profit if prices move down and a loss if they move up. Using the same example, we would lose $150 if we had a short position and the market moved higher by 15 pips. It would amount to a $200 profit if the prices fell by 20 pips.

Forex Profit and currencies

The currency in which profit and loss are expressed is another factor to consider. The P&L in our example above was expressed in USD. However, that could sometimes not be the case.

The GBP/USD exchange rate is expressed in US dollars per British pound. The quote currency is USD, and the base currency is GBP. One GBP is worth USD 1.3147 at the current exchange rate of GBP/USD 1.3147. Therefore, there will be an adjustment in the value of a dollar if the price changes. Each pip for a standard lot will be valued at ten dollars, and the difference between profit and loss will be expressed in US dollars. The P&L will typically be expressed in the quoted currency, so if it isn’t in USD, you will need to convert it before using it to calculate the margin.

Think of yourself as having a hundred-thousand-dollar short position in USD/CHF. Your P&L in this scenario will be expressed in Swiss francs. Right now, the rate is about 0.88. Every pip for a typical lot will be valued at CHF 10. A 100 CHF profit will be realized if the price drops by 10 pips to 0.9960. You will need to divide this profit and loss by the USD/CHF rate, or CHF 100 ÷ 0.9960, to convert it to USD, which will be $100.4016.

The margin balance that is accessible from the trading account can be easily calculated when you receive the P&L values. Calculations of margin are usually done in USD.

Why are financial widgets offered by forex brokers necessary?

Draw visitors and enhance the content of their website.

By enabling users to convert currencies on a website, currency converters, and other trading calculators are ideal for boosting the value of the forex broker’s website and lowering bounce rates. Additionally, users are given the ability to quickly obtain the information they need.

User-friendly

The user-friendly calculators are straightforward to incorporate into any website or color scheme. They are also small due to design optimization, so there won’t be any delays in the normal loading of your website.

Nice design

The trading calculators and financial widgets are designed to improve a website’s value and support marketing campaigns. Because of this, their branding is delicate and discreet, allowing it to blend in seamlessly with your own logo and marketing materials.

Final thoughts

Your brokerage account will automatically compute the P&L for each trade you make, saving you the trouble of doing these calculations by yourself. You must comprehend these computations, though, because you will need to determine your P&L and margin needs when you structure your trade or before you execute it.

You can figure out how much margin you need to hold a position based on how much leverage your trading account offers. You will be able to effectively manage your risk if you have in-depth knowledge of the amount of money involved in each trade.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.