How to calculate the profit and loss of a trade?
Posted by Homi .M on 22 April 2013 11:38 AM
Here is an example for calculation of your profit or loss:
According to the formula for calculating the pip, we have (.0001/1.1290) x100000 = 8.85 x 1.1290 = 9.99$ per pip x 10 pips = 99.9$* Remember when you buy a currency, you will use the ask price and when you sell, you will use the bid price. The above example is for when the USD is counter currency. Here is another example when USD is the base currency:
- Let’s trade 1 lot on EUR/ USD, it means that you are buying EUR and selling USD.
- The rate you are quoted is 1.1278/ 1.1280 so you buy 1 standard lot (100000 units). You are working on the “ask” price of 1.1280 because you are buying EUR.
- Then the price moves to 1.1290 and you decide to close your trade.
- The new quote for EUR/ USD is 1.1290/1.1292. Because you initially bought to enter the trade, now you sell in order to close the trade so you must take the “bid “price of 1.1290.
- The difference between 1.1280 and 1.1290 is 10 pips or .0010
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- Let's buy U.S. dollars and Sell Swiss francs.
- The rate you are quoted is 1.4525 / 1.4530. Because you are buying U.S. dollars you will be working on the "ask" price of 1.4530.
- So you buy 1 standard lot (100,000 units) at 1.4530.
- A few hours later, the price moves to 1.4550 and you decide to close your trade.The new quote for USD/CHF is 1.4550 / 1.4555.
- Since you're closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the "bid" price of 1.4550.
- The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
- Using our formula from before, we now have (.0001/1.4550) x100,000 = $6.87 per pip x 20 pips = $137.40