How to Calculate Your Loss Like a Pro Trader

As a new trader, you might be thinking that Forex profit-loss calculation is very easy. It is about making a marginal benefit of even a cent, which will result in a big trade of benefit. In this article, we are going to do some mathematical calculations with your lot size to determine whether you will profit in the Forex market or make a loss. We will also determine the amount of profit and loss.

We are going to show you the simplest calculation you can use to  determine your Forex profit and loss. Don’t be afraid as it will be based on your real-life understanding.

Unrealized and realized profit and loss

Before that, we need you to understand that, Forex markets are very rapid. Each trade here opens in a microsecond and they close in a nanosecond before you even blink your eyes. There are two types of profit and loss in a Forex market. The unrealized profit and loss and the realized profit and loss. To understand this, you need to look online for ETFs. If you take the trades in the real market, you will notice that your trade opens with a small loss. This is due to the fact, you are paying the spread to the broker. However, if you check your account balance, you will not see the reflection of that loss as this loss is considered an unrealized loss. On the contrary, if you close the trade with a small loss, you see the amount deducted from the account balance. In trading terms, we call this the realized loss.

Because Forex markets are trading in real-time, any trade that you are involved in, can be closed at any time. You may think a trade will be profitable or lose for you. You may even have calculated an amount that you will gain when the trade closes. But you know, it is marked with the real-time market situation and it can be closed at any time. It is unrealized profit or loss. When the trade closes, you realize the actual profit or loss you made. This is the realized profit and loss.

Calculating profit and loss

Here is the most anticipated part of the article. How will you calculate your profit and loss? You might be thinking it will be a very complex process but in reality, you can do this with a very simple technique. Remember this simple formula:

The price of your currency when you sell it, minus the price of your currency when you bought multiplied by the lot size=profit or loss.

This is as simple as that. To make things easier, let us give you a simple example. Let’s say, McDonalds sold you a hamburger for 2 dollars and it cost them 1.5 dollars to make, they make a profit of .5 dollars. What will happen if they sold 1000 hamburgers?

We can calculate the profit using the formula.

Price when McDonalds sell-Price when McDonald’s bought x lot size

= (2.00 USD-1.50USD) *1000=500 Dollars. 

So, in simple terms, McDonalds made a profit of 500 dollars from this transaction.

This is your Forex calculation formula for your profit and loss. Simply minus the price of buying from your sell price and multiply the amount with the lot size. If you receive a positive figure, it is profit. If you receive a negative figure, it is a loss.

Forex trading is an art. As the market is operated in real-time, you will have to be-be swift to make your decisions to make cash. Do not wait for a trade to come at your desired point as it may close at any point before you could make money. Make small trades practice, and practice some more. Soon enough, you will make money in Forex trading. You may lose some trades at first, but do not lose heart. Keep trying.