# Quick Guide: How to Calculate Profits and Losses of Your Currency Trades

The foreign exchange market serves as an online platform to buy and sell currencies — think euros (EUR), US dollars (USD), British pounds (GBP), Japanese yen (JPY), Swiss franc (CHF) and Australian dollars (AUD).

Fundamental analysis and technical analysis are primary research tools employed by Forex traders on a daily basis. Irrespective of the trading strategy used, understanding the calculation behind profit and loss is important as a reduction in account equity reduces margin. This is also known as free margin—the difference between equity and used margin (used margin represents the deposit value required to open a trade).

## Profit & Loss Calculation

All trades executed in the Forex market are marked to market.

This provides a real-time view of unrealised profit and loss. Unrealised refers to active open positions. In other words, potential profit and loss.

Currency pairs are valued through quote currency. EUR/USD—where euro is the base currency and US dollar represents quote currency—trading at \$1.3000 means to purchase 1 euro it’ll cost 1.30 USD. If EUR/USD advances to \$1.3100, the cost to purchase 1 euro is 1.31 USD. Any price fluctuation is in quote currency: dollar value, in this case.

Calculating profit and loss is a straightforward exercise, achieved by multiplying trade size (or position size) by pip movement.

Account denominated in US dollars.

Long (bought) EUR/USD 10,000 units (mini lot size) at \$1.2130 which rallies to \$1.2150.

This represents a 20-pip gain.

Assuming the trader takes profit at \$1.2150, we must multiply 10,000 units (trade size) by 0.0020 (pips [currency pairs are usually priced to four decimal places]), which equates to a 20 USD gain (or 1 USD per pip). If trade size was 100,000 units (standard lot), the return would be 200 USD (100,000 * 0.0020).

The problem is not all accounts are denominated in US dollars.

Account denominated in euros.

Using the same example above, the EUR/USD long trade (10,000 units) from \$1.2130 to \$1.2150 profited by 20 USD. Nevertheless, the account in this example is based in euros. For that reason, the trader must convert dollar profit into euro. We do this by dividing 20 USD by \$1.2150 (EUR/USD current rate) which equates to €16.46 profit.

Account denomination with no relationship to either the base or quote currency.

For example, a trade on GBP/USD with an account denominated in euros.

To calculate profit and loss, you must locate the EUR/USD exchange rate and repeat the same process as demonstrated in the second trade example (20 USD / EUR/USD exchange rate).

Dividing 20 USD by the GBP/USD exchange rate measures profit and loss in GBP. By dividing 20 USD by the EUR/USD exchange rate, we know we’re calculating profit and loss for euros.

## Calculating Profit & Loss Via Pip Value

Calculating profit and loss through pip value is another simple and effective method. It involves multiplying pips gained (or lost) by pip value and trade size.

The manual calculation to determine pip value depends on the currency pair traded.

For accounts denominated in the same currency as the currency pair’s quote currency, the following conventions are used to determine pip values:

• \$0.10 (Micro Lot)
• \$1.00 (Mini Lot)
• \$10.00 (Standard Lot)

The above assumes a US dollar denominated account. And a USD account trading the EUR/USD currency pair, therefore, follows the aforementioned pip values.

A long (buy) at 1.2000 on EUR/USD, trading 1 standard lot that liquidates at 1.2030 registers a 30-pip gain, or 300 USD gain (10.00 [pip value] * 30).

For accounts denominated in the same currency as the currency pair’s base currency, you must divide 1 pip (0.0001 for most currency pairs) by the value of the currency pair’s exchange rate and multiply this value by the trade’s position size.

For example, an account currency based in Australian dollars, trading the AUD/USD at \$0.7746 with 1 standard lot, is calculated by dividing 0.0001 by 0.7746 and then multiplying this value by 100,000. The pip value is 12.91 AUD.

For account currency not included in the currency pair traded, you can follow the same process as above (base currency).

An account based in euros—trading GBP/USD—must locate the EUR/USD exchange rate and divide 0.0001 by this value and then multiply by the trade size.

## Profit & Loss Forex Trading Calculator

At any time, a trader can view their account balance in real time.

If you insist on performing manual calculations, you must remember to factor in swap fees (if trades are held overnight) and spreads as well as commissions.

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