Profit/Loss Calculation

Making profits in trading is all about expectations and speculations for prices. The main concept is to buy a product hoping to sell it on a higher price or vice versa, so that the difference is your profits. Sometimes the market may go against your trades, thus the result would be losses.

As an investor, your net realized profits will be the total profit your order has made minus your broker’s spreads, commissions, and/ or any other deductions.Spot CurrenciesFutures 

Spot Currencies

The foreign exchange market – also known as the forex market, is considered to be the largest financial market in the world, processing trillions of dollars worth of transactions each day.

When you trade on a currency pair, the resulting profits amount is in the profit currency (second part of the currency pair). Therefore, in direct currencies where the profit currency is USD, profits are directly calculated in USD, according to the following equation:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots

If the profit currency in the pair is not USD, and in order to have those profits in US dollars, the resulting amount will be exchanged with USD according to the exchange rate at the time of closing the order.

Profits/ Losses calculation for indirect currencies:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots / Closing Price

Profits/ Losses calculation for cross currencies:

[1] If the profit currency was denominated in a direct currency:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots X USD Exchange Rate

[2] If the profit currency was denominated in an indirect currency:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots / USD Exchange Rate

Example:

You bought 2 mini lots of EURGBP at price 0.8910, in few days, the price goes up and you close your position at price 0.8932. The resulting profit will be as follows:

Note: the exchange rate for GBPUSD at the time of closing the order is 1.4875

Profit = (Bid Price – Ask Price) X Contract Size X Number of Lots X Exchange Rate (USD)

= (0.8932 – 0.8910) X 10,000 X 2 X Exchange Rate for (GBPUSD)

= 0.0022 X 20,000 X 1.4875

= 65.45 USD