In Forex trading, of course you are familiar with the terms profit and loss, which are used to calculate profit and loss. To be able to calculate profit and loss, there are the terms Major Rate and Cross Rate. Before discussing in more detail, let's first differentiate the types of accounts and transaction units (LOT = Letter of Transaction) and PIPs. In forex trading, there are several transaction units or called Lot. What is generally traded are 3 types of lots in forex trading, namely

  • Standard (size 1.00 lot)
  • Mini (size 0.10 lots)
  • Micro (size 0.01 lot)

The three types above are generally provided by trading brokers on various types of trading accounts. Traders must ensure what type of account is provided by the broker because not all brokers provide mini or even micro lots.

On a standard Forex account:

  • 1 Lot = $100,000
  • 0,10 Lot = $10,000
  • 0,01 Lot = $1,000

Next, PIPs (point interest points) are the amount of price/exchange rate changes or calculating profit and loss or forex trading orfit/loss. For example, for the EUR/USD pair if the price moves from 1.11365 to 1.11565, it means an increase of 20 pips. The profit/loss obtained is a conversion from pips to currency (eg US dollars) based on the number of lots traded.

Here's how to calculate profits and losses or profit/loss from forex trading transactions based on the pair selected in forex trading activities:

For Currencies with USD as End (Direct Rates Pair):

The currency pairs that are direct rates pairs are GBP/USD, AUD/USD, EUR/USD, and NZD/USD. The calculation method is:

Calculating profit/loss = (Selling Price – Buying Price) x contract size x lot

Example:

  • Buy 1 standard lot (1.00) EUR/USD (Open) at price: 1.17450
  • Sell ​​1 standard lot (1.00) EUR/USD (Close/liquid) at price: 1.18450
  • Profit = (1.18450 – 1.17450) x 100.000 x 1
  • Profit = 0.0100 x 100.000 x 1 = $1000
  • Sell ​​3 standard lots (1.00) EUR/USD (Open) at price: 1.19855
  • Buy 3 standard lots (1.00) EUR/USD (Close/liquid) at price: 1.17355
  • Profit = (1.19855 – 1.17355) x 100.000 x 3
  • Profit = 0.0250 x 100.000 x 3 = $7500

By selling 3 lots of EUR/USD currency pair, a profit of $7,500 is obtained. The simple calculation for direct rates pair is:

  • The value of 1 pip for 1 standard lot is $10,
  • The value of 1 pip for 1 mini lot is $1,
  • The value of 1 pip for 1 micro lot is $0.1

So if you make a profit of 50 pips on a transaction of 1 standard lot, it is worth $500.

For Currencies with USD as Prefix (Indirect Rates Pair):

Included in indirect rates pairs are USD/JPY, USD/CAD, and USD/CHF.

The calculation method is:

Calculating profit/loss = (Selling Price – Buying Price) / Liquidation Price x contract size x lot

Example:

  • Buy (open) 1 lot standard (1,00) USD/JPY 112.000
  • Sell (close) 1 lot standard (1,00) USD/JPY 112.150
  • Profit = (112.150 – 112.000) / 112.150 x 100.000 x 1 = $113.750

Liquidation price = closing price. In the example above the profit is 15 pips.

For Currencies with Cross Rates:

Cross Rates pairs include EUR/JPY, GBP/JPY, AUD/JPY, GBP/CHF, EUR/GBP, EUR/CAD, AUD/CHF, etc.

The calculation method is:

Calculating profit/loss = (Sell Price – Buy Price) x (Current Base Currency Rate / Pair Rate) x contract size x lot

The base currency rate is the initial currency rate in the cross pair against the USD.

Example :

  • EUR/USD is the base currency of EUR/JPY
  • Buy (open) EUR/JPY 1 standard lot (1.00) at price 137.050
  • Sell ​​(close) EUR/JPY 1 standard lot (1.00) at price 137.300

=> profit 25 pips

The current prices for the EUR/JPY and EUR/USD pairs are:

  • EUR/JPY 137.300/137.330
  • EUR/USD 1.33760/1.33770

So, the profit obtained = (137,300 – 137,050) x (1.33760 / 137,300) x 100,000 x 1

= 0.25 x 0.0097 x 100,000 = $243.550

The formulas for calculating profit or loss above do not actually need to be memorized because all are automatically displayed on the forex trading platform provided by the forex trading broker. This formula is just knowledge to help you learn forex and understand how to calculate profit/loss in Forex trading.

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