Calculating your profits as a UK forex trader
How any UK forex trader can calculate profit and loss while trading.
When it comes to investments, few opportunities are as viable as forex trading; so, it is no surprise that it has gradually overtaken stocks as a preferred instrument for trading. This is why it is now fairly common to find more UK forex traders than stock traders. If you look around your local library or coffee shop the next time you visit, it is likely that you will find someone doing a forex-related activity.
Now, while in other markets it is easy to calculate profit and loss, in forex trading it is not the same, as it is unarguably the fastest paced market around. It is even worse when you have multiple positions open. This is why traders must have the split-second ability to understand how their profits and losses are calculated.
Measuring Profit And Loss as a UK forex trader
In forex trading, each point moved by the market is known as a pip. The amount of profit made or loss incurred on the trading depends on the lot size used by the trader in entering the trade. Now, no matter what the loss or profit says, it will not be added to your account until you have closed the trade. Once the trade is closed, the profit or loss is crystallized.
To calculate your profit, therefore, you need to know your position size and the number of pips or points that the underlying instrument has moved. Here is an example:
If a buy trade was opened on the EUR/USD pair at 1.3025 and closed out at 1.3045 and, assuming that the trader opened two standard lot positions of 200,000 (where every pip is calculated at $20) then the calculation would work out as follows – 200,000 x 0.0020 (Pips) = USD400 profit. If for example the trader had gone short at 1.3025 and closed out at 1.3045 then he would have booked -20 pips and therefore instead of a USD400 profit, he would have taken a loss of USD400.
You may not really need this calculation, however, because most forex brokers provide platforms that automatically show the total profits running on a trading account. This means that you do not have to calculate these manually to decide if you should close or open a position. On most platforms, you also have the choice of determining how the profits will be displayed to you: you can either set it to be shown in pips only or you can set it to be displayed in your deposit currency. This option comes in handy for individuals who do not know how to handle their emotions in the presence of a profit or a losing trade.
However, having said that, knowing how these things are calculated is important because it will help you know when your broker fails to credit your account with the right amount of money. It can also help traders to determine what the margin level is on the account. When calculating your profits, do not forget to factor in the spread charged when you opened the position.
Get a free Forex PDF PLUS:
- 14 Video Lessons
- Free One-on-One Training
- A 5000$ Training Account
- In-House Daily Analysis
- Get FULL ACCESS