Calculate Forex Profit
Are you struggling to calculate forex profit or loss of trades? Here is a step-by-step guide to profit calculations with different lot sizes & criteria.
What is a pip in Forex?The ultimate aim of forex traders is to earn a good amount of profit from trade. Having a clear idea of expected profit or loss before opening a position is a must for traders. However, many traders struggle with profit calculations. Even the experienced traders face the same situation.
Profit calculation is not that difficult in forex. However, lot size and pip value make it complex. Thus, in this article, we will study how to calculate forex profit using different examples and criteria.
Components of Profit Calculations
The first step of profit calculations is to collect all the information that can make a difference to the profit amount. Here are the essential components of profit calculations:
Currency Pair: Identify the forex pair you want to trade in. Generally, a pair includes two currencies: base and quote. In the currency market, profit is generally calculated in quote currency.
Position Type: In the forex market, traders can make a profit from both buying or selling the pairs. So first, determine whether you are opening a short or long position.
Lot Size: Currencies are traded in lot sizes. Lot size can also be defined as the quantity of currency. There are three main types of currency lots: Standard, Micro, and Mini. The lot size is among the most important elements that can make profit calculation quite complex.
Entry and Exit Prices: These can be defined as the price at which you enter (open) and exit (closing) a trade position.
Exchange Rate: Exchange Rate can be defined as the rate at which traders buy or sell one currency against another. The exchange rate of a pair keeps fluctuating, impacting the profit or loss amount.
Leverage: Traders can place trades larger than their capital using a leverage facility. Leverage can significantly enhance your profit or loss amount.
How to calculate profit in forex with lot size
You have learned about the elements you need to calculate profit. Now let us practically understand forex profit calculation for different lot sizes with an example:
Standard or 1 lot size profit or loss calculation
Currency Pair: GBP/USD
Opening Price: 1.2500
Closing Price: 1.3100
Stop Loss: 1.2000
Position: Bullish
Profit = (Closing Price – Opening Price)* Lot size
The standard Lot size equals 100,000 units.
In the case of the trade close trade position at a profit, then the profit amount will be (1.3100-1.2500)* 100,000 = 6000 USD. And if the trader closes the trade at a loss then the loss will be (1.2000-1.2500)*100,000 = 5000 USD.
Mini or 0.1 lot size profit or loss calculation
The Mini Lot size equals 10,000 units. In the same example, If the trader closes the trade at a profit, the profit amount will be (1.3100-1.2500)* 10,000 = 600 USD. If the trader closes the trade at a loss, then the loss will be (1.2000-1.2500)*10,000 = 5000 USD.
Micro or 0.01 lot size profit or loss calculation
The above example is of long positions. Now, for a better understanding, let us understand profit and loss calculation with another example of the short position. Here are the criteria of trade:
Currency Pair: EUR/USD
Opening Price: 1.1500
Closing Price: 1.1100
Stop Loss: 1.1600
Profit = (Opening Price – Closing Price)* Lot size
Now, in this case, if the trade closes on profit, then the amount will be (1.1500 – 1.1100)*1000 = 40 USD. And suppose if the trade closes at a loss, then the amount will be (1.1500 – 1.1600)*1000 = 10 USD.
Forex Profit Calculation with Leverage
When leverage enters the trade, profit, and loss calculation becomes difficult for traders. So, let us understand how to calculate pip profit with leverage:
Currency Pair: XAU/USD
Lot Size: 1 (100 Ounce)
Entry Price: 2500
Exit Price: 2550
Leverage Ratio: 1: 100
Position: Buy
The trader has a capital of 5000 USD, so he decided to open a trade worth 2500 USD. By using 1:100 leverage, the trader can control a position of 1 lot.
So his profit will be (2550- 2500)*100 = 5000 USD. However, one thing to remember while trading with leverage is margin maintenance. A trader needs to maintain a margin amount while trading with leverage.
Like in the above case, he opens a trader worth 250000. Thus, he needs to maintain a margin of one percent or 2500 USD; otherwise, he will get a margin call, and the position will close automatically.
Wrapping Up
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