How to calculate profit and loss in Forex
August 12, 2023
Forex Trading provides a perfect opportunity to trade international currencies, the market offers you challenging and profitable opportunities, and if you are a well-educated investor, you would be able to make the most out of the market. Considering all the above-mentioned information, Forex is a risky market, and you need to remain alert to your position. The success or failure of an investor is measured in terms of profit and losses on their trades. So, it is essential to have a clear understanding of your profit and losses or P&L because it will affect the margin balance in your trading account. When you suffer a loss, in fact, when the market moves against you, your margin will have to pay the cost, and you will witness it shrink. In this case, you will have less money available for trading. I know they’re to understand a Forex profit calculator, you need to understand the basic terminology used in Forex Trading.
Table of Contents
Lot and pip
Pip is the smallest unit of measurement in Forex Trading, and it is calculated through the movement of the currency pair price. On the other hand, a lot is the standard unit of measurement in Forex Trading which represents a certain amount of currency. The most important factor when determining the profit and loss in Forex is to consider the size of your trade, the exchange rate of the currency pair, and the market trend.
Forex Market is high all the time, so it is necessary to track the exchange rate movement for trading; every pip can affect your trade. You can learn to calculate pip but even experienced Traders use free online keep calculators that can give accurate and instant results by automating the circulation process.
On the other hand, you need to consider the amount of money you’re willing to risk for trade because by considering the position size, you will be able to calculate the amount of profit or loss of trade. It is recommended to consider your risk tolerance when deciding your position size in a trade.
Read more: Trading in Forex
Understanding profit and loss in Forex
When you start to calculate the profit and loss of your trades in Forex, you will be encountered two terms, unrealized and realized profit and loss.
Unrealized profit and loss refer to trades that are still open and the trailer didn’t close them. In this case, you have an open position, which means you couldn’t realize your profit because you couldn’t claim the gain as income.
Realized profit and loss refers to a trade that has been closed. To put it simply, in this case, the gains have been converted into cash. In other words, you only can realize profits from a trade when you receive cash. In this case, as you have received the actual cash, you know how much profit you earn.
Read more: The currency markets
How to calculate profit and loss
In theory, calculating profit and loss in a trade is simple; all you need is the position size and the number of Pips the price has moved. Your actual profit or loss of that trade equals the position size multiplied by the PIP movement.
For example, let’s say you have invested 100,000 GBP/USD position, which is currently trading at 1.3147. and the price moves to 1.3162, which means the price moved for 15 pips. Considering your position size, your profits will be $ 150. But remember that calculating profit and loss depends largely on your position:
When you open a long position, if the market moves according to your speculation, you will make a profit. But if the price moves down, you will suffer a loss. In the previously mentioned example, when the market moves up, your profit will be $ 150; on the other hand, if the market moves against you to 1.3127, Your trade will end up with it a $ $200 loss.
Read more: Smart money concepts forex
On the other hand, when opening a short position, you need to know that if the price moves up, your trade will end up with a loss. And if the market moves according to your speculation and falls, you will make a profit.
The bottom line
as a beginner, you can simply calculate the profit and loss of your trade in Forex. But there are Forex profit calculators you can find online, and remember, all broker accounts automatically calculate the p&l for your trades. For instance, in Aron Groups, we provide you with the same functionalities in our trading platforms. Because it is important to understand your profit and loss of a trade, you are trading on margin, which means you have made a deposit and provided minimum collateral to use Leverage. And if you don’t know the profit and loss of your investment, you will have to compensate for the losses with your margin account balance, which results in Greater losses.
Forex is a volatile Market that is open 24 hours, 5 days a week. Don’t be tempted by the idea of getting rich quickly using Forex Market. Even experienced Traders need to test their strategies using a Forex demo account before Trading real money. So if you are new to the market, first, you need to use educational materials and research to get familiar with Forex terminology and basics. Then you are ready to open a demo account and test your theory in a real market with virtual money. By doing so, you will experience the markets without spending a dollar in a risk-free environment. After conducting a couple of trades, you can enter the real market and use live data to open positions and make a profit. Using Metatrader 5, you will be provided with the information you need to calculate the profit and loss of your trades and open fruitful positions.