Calculating Forex Profit and Loss - Examples

Understanding the math involved in computing forex profit and loss is essential even if your trading platform computes this automatically. Aside from letting your broker know he can’t put one over on you, understanding your forex profits just makes good sense considering the amount of money generally involved in a forex trade.

Forex trading profit is simple enough to calculate. Just keep two formulas in mind.

Where the quote currency is the USD meaning the second currency in a pair, here is the formula:

Profit = Price Change in Pips X Units Traded

Given that USD is now the base currency or the first currency in a pair, the formula becomes:

Profit = Price Change in Pips X Units Traded / Exit Price

To facilitate your understanding here are a few examples.

In this example, the quote currency is the USD. In the interest of simplicity, assume the broker’s margin requirement is only 1% thus your $1000 will allow you to trade $100,000.

You plan to trade on the EUR/USD with a current trade value of 1.2518/9. Based on your analysis, the USD will weaken against the euro so you send an order to buy euros which also includes concurrent sale of USD.

So at the 1.2519 mark you are able to buy $100,0000. However buying requires taking the second number in the quote or the ask price.

The price rises reaching 1.2532/3 proving the accuracy of your system. Now you proceed to set in motion selling EUR and buying USD. In this case the bid price is used, which is 1.2532.

So your buying price is 1.2519 and your selling was 1.2532 giving you a trading profit of 17 pips or 0.0017. Let us now transform to real money terms. Given the formula earlier:

Profit = Price Change in Pips X Units Traded

Or,

Profit = 0.0017 X 100,000 = $170.00

Remember this simple rule of the thumb that given a standard trading lot of 100,000 where the USD is the quote currency in the pair, the pip will be equal to $10. So 17 pips x 10 equals $170.

Going further, let’s look at another forex trading profit example. Consider a base currency of USD. A buy order of 100,000 units at 117.22 of USD/JPY is placed. Price goes up to 117.35, we sell. Our profit is 13 pips noting that when dealing with JPY currency pairs, instead of the regular 4 decimal places, we quote up to two decimal places.

Using the second formula to compute our profit:

Profit = Price Change in Pips X Units Traded / Exit Price

Or, Profit = .13 X 100,000 / 117.35 = $110.78.

To learn much more about forex profit and loss, and strategies to optimize your forex profits, consider the following professional training options:

1. Forex Trading Made EZ (Easy)

2. Forex Mentor by Peter Bain

3. Forex Profit Accelerator by Bill Poulos