Forex Profit & Loss Calculation: A Beginner's Guide

Calculating your FOREX profits and losses can be kind of tricky. Understanding how much you made with a stock trade or some other common security is easy. However, when you are dealing in the foreign exchange market, you are dealing with multiple currencies. On every transaction, you will be simultaneously buying one currency and selling another. This necessitates the need to convert some numbers in order to see how much actual profit you have made. Here are the basics of calculating FOREX profits and losses on a normal trade.

Calculating Trades

The main thing that you have to remember is that profit is initially figured in pips, not dollars. Since your account may be in U.S. dollars and you are trading some other currency, a pip allows you to see exactly how good a trade was. The first thing that you need to see is how many pips you have made on a particular trade. 

Once you see how many pips you have made or lost, you need to determine how much one pip is worth. If you are trading .1 lots, it will be $1 per pip for most currencies. If you are trading 1 lot, it will be 10 per pip. Multiply the two values together. Most charting software figures your profit for you automatically, but it is still nice to know how to do it manually.