Forex trading involves buying and selling currency pairs with the goal of making a profit on the price differences. Therefore, knowing how to estimate the potential profit and loss of a trade is an important part of trading. Unlike other assets, like stocks and exchange-traded funds (ETFs), profit estimation in forex is relatively difficult. In this article, we will look into how these calculations are done, and how you can use a forex calculator to simplify your life.

How to calculate profits in forex trading

Forex trading is relatively different from other assets. For example, profits are calculated in stocks by subtracting the closing price from the opening price. It’s a relatively straightforward calculation – if the closing and opening prices were $25 and $10, the profit is $15 per share.

Calculating profit and losses in forex is more complicated because of the concept of pips and leverage. A pip is the smallest whole unit measurement of the difference between the bid and ask spread in a quote.

Another concept that influences profits in forex is lot sizes. There are three main types of lot sizes in FX trading – standard, mini and nano. A standard lot is the same as a 100,000 currency lot. If the GBP/USD pair was trading at 1.1200, a standard lot would be 120,000 of the quote currency. A mini lot refers to 10,000 units. So in this example, a mini lot of the GBP/USD pair is 11,200 units. A micro lot in forex trading is 1,000 lots, meaning that in this case the GBP/USD a trader needs 1,120 of the US dollar to buy 1,000 units of the euro.

For experienced traders, calculating profit and loss in forex trading is relatively easy. However, this process can be long and somewhat complicated for most new traders. As a result, most people use a forex profit calculator to simplify the process.

How to calculate profit in FX trading

Calculating profit and loss in forex trading is a relatively simple process. For example, assume that you have a standard lot of 100,000 EUR/USD position and the price moves from 1.1200 to 1.1250. In this case, the bullish trade has made 50 pips. As a result, the profit of this trade would be $500 or 100,000 x 0.0050.

How to use a forex profit calculator

A forex profit calculator is a simple tool that many brokers provide to assist traders in estimating their profits easily. The calculator is made up of several important sections including base account currency, currency pair you are trading, opening and closing price, period in days, trade side (buy or sell), position size, swap long, and swap short.

Period is an important section of a forex calculator because of swaps. Most brokers charge a small fee known as a swap for all trades left open overnight. Swap long is used for keeping long or buy trades open overnight while a swap short is used to keep a short position overnight.

Why use a forex profit calculator?

There are three main reasons why you should consider using a calculator in forex trading. First, a calculator will simplify the process of your profit and loss estimation since you just need to key-in the details.

Second, a profit calculator can help you identify stop-loss and take-profit levels. A stop-loss is the maximum loss that a trader is willing to take while a take-profit is the target level where a trade is stopped at a profit. Finally, a forex calculator will save you time when trading.

Summary

A forex profit calculator is an important tool that helps traders simplify the process of estimating their profits. A well-created calculator can save you time and help you identify potential profit and loss levels.

Most analysts recommend that you use a calculator provided by your forex broker since it has specific details like spread of what they offer. Also, they can easily get the live price of the currency pair automatically.

Other types of calculators that will simplify your trading are pip value, margin, swaps, position size, Fibonacci, risk of ruin, and drawdown calculators among others.