How To Calculate Your Forex Trade Profit and Losses?


Last Updated: June 07, 2020

Forex trading is a serious task that requires you to have good knowledge of various currency pairs and their advantages as well as their shortcomings to be able to trade in forex pairs successfully.


In addition to that, the trader also needs to take into account the various factors that can make currencies highly desirable or highly volatile.


Forex trading can be a very lucrative source of income for any newcomer as well as a veteran trader. Ascertaining what your profit and loss level is can go a long way in helping you keep your finances in check and help you get the most of your trades.


How much profit or loss you have incurred in each trade you make is highly valuable information for any forex trader who aims to become a pro and make the best trading choices on the market.


After going through this article, you will learn that currency profit calculation is a vital part of your life as an fx trader and how you can calculate it.

​Fx Profit Calculation: Where and How Should You Start?

In broad terms, the best place to start is from the beginning, Keeping track of how much you have invested and what you expect to get out of that particular trade can help you draw out strategies to use for the future after you compare your results with your expectations.


Furthermore, one can say that the calculation of profit and loss in a position is quite a simple process. All you need to get started is the position size as well as the number of pips that price has moved.


For those who don’t know what the term pip is, it stands for Percentage in Point and is said to be the least amount of price that an exchange rate will be able to make in accordance with the forex market protocols.


After you have determined the position size of the pip, you need to see if you were long or short on each trade that you conducted. Traders normally go long on currency if they think it will appreciate in the future or go short if they think it will depreciate.


Long Position Scenario: if the prices are observed to be moving up then there is a profit. On the other hand, if the prices are going down, then it means that the trader is said to have incurred a loss on that trade.


Short Position Scenario: Conversely, if the prices are observed to be moving up then the trader is said to have incurred a loss on the trade and if the prices are observed to be going down then it is recorded as a profit.

Forex Margins

Forex Margins

Source: https://www.babypips.com/learn/forex/what-is-margin

Forex Margins calculations are something that a trader should never neglect, they are usually represented in percentage (%) and are a crucial part of trading.


They are the deposits made by traders who are looking to secure a position. One can even say that they are a form of collateral that can help your account brace all the trades that you make.


The amount of margin deposit entirely depends on the size of your trade and you should always make sure you don’t deposit too much on the margins in case the trade goes bad.

Forex Margin Calculation

Forex Margin Calculation


There is a simple formula that can help traders calculate their required forex margins accurately that is:


Margin Requirement = ([{BASE Currency} / {Account Currency}] x Units) / Leverage


To understand how margin calculation works let us take a look at an example.


Suppose that you are trading INR with JPY and the currency that your account uses by default is USD. If you decide to take a position that is said to be 10,000 units of currency then it means that you’d be buying 10,000 INR against the same amount of JPY.


You are said to be paying in the JPY currency and buying in INR but you are actually purchasing the Japanese currency with the default currency of your account which in this case is USD.


Therefore, the margin requirement for your trade will only be calculated in USD by your broker.


So if you put in the above example in the formula, you’ll get USD as your account currency, INR as your base currency, and JPY as your quote currency.

Leverage can differ from broker to broker and is usually 30 times the margin requirement.


Many traders are attracted to lower margin requirements as it lets you grab the same position on a significantly smaller amount. If your trades are successful then you are sure to make a good profit.


On the other hand, if the trade goes bad then you may end up incurring amplified losses so make sure you decide your margin requirement carefully.


A good example would be the 1929 stock market crash where a lot of traders incurred heavy losses as the margin requirements during that period were as high as 75%.

Conclusion

financial-5050415_640

In the end, the fact that forex trading is no joke gets reiterated over and over again. In order to be a successful currency trader, having vast knowledge about the market as well as other technical aspects can go a long way for you.


Strong mathematics skills might be required time and again as you need to crunch the number in order to predict the future position of your trades and use various formulas to help come up with accurate decisions.


In addition to that, anyone interested in fx trading should also be up to date with all the relevant global news as well as the news related to the global financial market so that they can make calculated decisions regarding their currency trading.


Furthermore, we have also established that one must keep track of every trade and all the relevant details about it to ensure that they get the most out of it such as calculating margin requirements properly, decide whether to go long or short on their investments, etc.