Profit Loss Calculation
What is a Pip (or point)?
The term used in the currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBP/USD, USD/CHF and 0.01 in the case of
USD/JPY).
How do I Calculate Profit/Loss?
The equation for EUR/USD, GBP/USD, and
AUD/USD is as follows:
P/L = (Opening Rate - Closing Rate) x Lot Size x Number of Lots
The equation for USD/JPY, USD/CHF and
USD/CAD is as follows:
P/L = (Opening Rate - Closing Rate) / closing Rate x Lot Size x Number of Lots
For a standard account, 1 pip results in a $10 profit/loss in EUR/USD and GBP/USD, approximately $9 in USD/JPY,
and $8 in USD/CHF.
For a mini account, 1 pip result in a $1 profit/loss in EUR/USD and GBP/USD, approximately $0.9 in USD/JPY, $0.8 in USD/CHF.
Example
The current bid/ask price for USD/CHF
is 1.5455/1.5458, meaning you can buy $1 US for 1.5458 Swiss Francs or
sell $1 US for 1.5455.
Suppose you decide that the US Dollar (USD)
is undervalued against the Swiss Franc (CHF).
To execute this strategy, you would buy Dollars (simultaneously
selling Francs), and then wait for the exchange rate to rise.
So you make the trade: purchasing US$100,000 and selling 154,550
Francs. (Remember, at 1% margin, your initial margin deposit would be
$1,000.)
As you expected, USD/CHF rises
to 1.5568/15571. You can now sell $1 US for 1.5568 Francs or buy $1 US
for 1.5571 Francs. Since you bought Dollars and sold Francs in
your previous trade, you must now sell Dollars for Francs to realize
any profit. If you sell US$100,000 at the current USD/CHF
rate of 1.5568, you will receive 155,680 CHF.
Since you originally sold (paid) 154,550 CHF,
your profit is 1130 CHF. To
calculate Dollar-based P&L, simply divide 1130 by the current
USD/CHF rate of 1.5568.
Total profit = US $725.85
If you had done the opposite to initiate the trade (sold Dollars and
bought Francs) you would have lost the same amount of money.
Note: The ApexForex is compensated by a portion of the bid/ask spread. This does not affect the above calculation.
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