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Calculating Profit and LossPretty much any online forex broker you choose will have a trading platform that automatically calculates your profits and losses for you. But I think it's important to understand the basic math behind it. It's a good way to make sure your broker is honest, plus it's just good to know. Besides, calculating profit and loss is really simple. There's only two simple formulas to remember. When USD is the quote currency (the second currency in a pair), the formula is: Profit = Price Change in Pips X Units Traded When USD is the base currency (the first currency in a pair), the formula is: Profit = Price Change in Pips X Units Traded / Exit Price Let's look at some real-life examples to help you understand. First we'll look at an example when USD is the quote currency. To keep things simple we'll assume the broker requires 1% margin, which means you can trade $100,000 in currency for only $1,000. So let's say you are looking at EUR/USD which is currently trading at 1.2518/9. You predict the euro will rise in value against the euro so you execute a trade to buy euros, which means you also simultaneously sell USD. You buy $100,000 units at 1.2519. Remember since you are buying you have to take the ask price, which is the second number in the quote. Your calculations are correct and the price rises to 1.2532/3. You initiate a trade to sell EUR and buy USD. This time you use the bid price, which is 1.2532. Since you bought at 1.2519 and sold at 1.2532 your profit was 17 pips, or 0.0017. Now we need to convert that into real money. So take your formula above: Profit = Price Change in Pips X Units Traded Or, Profit = 0.0017 X 100,000 = $170.00 An easy rule to remember is that when trading a standard sized lot (100,000) of a currency pair in which USD is the quote currency, a pip is always equal to $10. 17 pips equals $170. Now, let's look at an example where USD is the base currency. We'll execute a buy of 100,000 units of USD/JPY at 117.22. The price rises and we sell at 117.35. We just made 13 pips. To calculate our profit we use the second formula: Profit = Price Change in Pips X Units Traded / Exit Price Or, Profit = .13 X 100,000 / 117.35 = $110.78. Nice and simple.
Recent Forex News
Technical Analysis GBPUSD: Bearishness Remains Dominant Outlook for the pair continues to point to the downside after bear pressure pushed GBP further lower the past week. This is coming on the back of its previous week losses and has now opened up further downside risk towards the 1.5326 level, its Aug 31'10 low. On a turn EURUSD: Set For More Gains Having closed strongly higher on the back of previous week strength, further bullish threats are now likely as we enter a new week. This technical development should call for more strength towards its Aug 18'10 high at 1.2921 with a violation there targeting the 1.3332 level. A break will resume USDCAD: Collapses, Halts Upside Offensive USDCAD: The pair ended the week lower after an attempt on the upside failed the past week and pushed USDCAD to a low of 1.0384 on Friday. With that said, we think a follow through lower should see the pair weakening further towards the 1.0246 level, its Aug 19’10 low Weekly Technical Update: Greenback Weakened Post Non-Farm Payroll The USD was in consolidation/ correction mode this week ahead of the NFP. This is in a sense the market's way of paring some overextended USD gains, but also offers a chance for the market to continue with greenback strength. There was some dollar strength immediately after the release, but USDJPY: Retains Its Broader Downside Bias USDJPY: The pair continues to retain its broader downside bias as it looks to recapture its YTD low at 83.58 despite its price hesitation. A breach of there will open the door for more downside towards the 82.00 level, its psycho level with a cut through there aiming at the 81.00 level. Newsfeed display by CaRP Fundamental Analysis Dollar Index Falls to Support on Better Job Data The dollar, while rising against the yen and Swiss franc, fell versus other key counterparts after better-thanexpected US employment data eased concern of a double-dip recession. For the week, all the major crosses except sterling rose against the greenback. Private-sector payrolls grew more than expected in August and job losses Weekly Economic and Financial Commentary For a generation of Americans brought up on action heroes who face impossible challenges and then win the day, the results of fiscal and monetary stimulus are disappointing. Yet, the level of pessimism and talk of a double-dip strike us as too much of a bad thing. This week we The Weekly Bottom Line We had some fairly positive data this week, starting with expansions in both personal income and consumption for the month of July. Then the Conference Board's consumer confidence index surprised market expectations on the upside and the ISM manufacturing index also fared better than expected underpinned by a surprisingly strong Risk Rebounds on Improving Global Data The past week began with disappointment stemming from Japan's lack of direct currency intervention and risk aversion looked probable to continue into the week. This was not the case as better than expected Australian 2Q GDP started a ripple effect culminating into a global wave of positive data surprises. Upbeat Is this an Audacious Obama Hope Rally? The strong rally in risk into today's close in the US today can't be about this week's economic data particularly as the ISM non-manufacturing index for August showed a steep deceleration. So why the rally? The combination of an equity rally and a lousy ISM resulted in the predictable Newsfeed display by CaRP |