Currency trading has become more and more prevalent nowadays due to the emergence of multiple online platforms. Almost anyone can try their hand at trading. If you are a newbie trader or have some experience in the business, you need to calculate your profit and loss. Newbies might think that traders set their profit after closing the position. However, it is also essential to know your possible risks before trading. This will help you create a strategy for what to do if something goes wrong. Let’s find out more about this topic.
Reasons to calculate your profit and loss
You no longer need to calculate profit and loss manually. Now, online trading platforms generally offer a Forex Profit Calculator or set your eventual win when you want to open a position. Your goal is to understand these calculations.
Profits and losses from all positions directly influence your margin. This is the first reason why you should define them before and during trading. If you didn’t open a position, you would be able to see how much money is needed to do so and if you are willing to take all the risks. You have to watch how the price changes while trading, and you will see the profit or loss you have at the moment.
Depending on the status of the position, there are unrealized and realized profits or losses. The first type defines your possible income from trading which is not closed now. Unrealized profit or loss can change as the price goes up or down. It is important to know whether you are getting profit or not. This information allows you to quickly close the position when there is a risk of loss or the position gives you the profit you want.
Another type of profit is called realized. It shows the income or loss you get from closed positions. The mark-to-market value of the position is what helps you determine the right time to close it. For a long position, it is a price that allows you to sell. If you want to close a short position, the market value is a price you can buy at.
Your margin balance will depend on both unrealized and realized profits and losses. So, the main reason for calculating income from open or closed positions is to see what you have already earned or what you can get.
How to do the calculations?
Here we will analyze how to define profit and loss for long and short positions. In each case, you need to know the size of the position and its leverage.
A long position
If you want to close a long position, you will get profit if the price goes up and lose money if it goes down. Leverage influences the amount of profit or loss. It defines the smallest price movement, which allows you to get the income. For example, if the leverage is 1/100, it is equal to 1% or 0.0001. When the price goes from 1.5167 to 1.5178, it has a difference of 0.0011. You need to multiply this amount and the position size to calculate the profit. If you have a position of $ 100,000, your profit will be $ 110. The loss will be the same if the price drops.
The calculations for short positions are the same as for the above case. The only difference is that you will get a loss with the price increase. If we take the previous example, when the price goes from 1.5167 to 1.5178, you will lose $ 110 in a short position of $ 100,000.
Which instruments to use?
It’s a simple way to quickly define profit or loss. You can perform these calculations when you analyze the proposed positions and the market. It is more convenient to use a profit calculator on online platforms. Here is a guide on how to calculate your profit with the FBS forex calculator.
- Indicate an account type
You need to choose an account type you will be trading on. Different instruments and levers depend on it.
- Select a trading instrument
A trading instrument defines the currency market in which you plan to trade. The bid and ask prices will change depending on the trading instrument you choose.
- Enter the number of lots
Here you need to set the number of lots you are striving to trade. You should consider that the lot size is different for each market.
- Choose currency
The FBS forex trading calculator offers USD and EUR currency options. You can choose the one that suits you the best to calculate the profit.
- Choose a lever
If you have a Standard account, you can benefit from different amounts of leverage. Other accounts have fewer options; sometimes only one option is available.
- Write the prices requested and offered
The last thing to do is to indicate the prices asked and offered. Usually, they are offered automatically.
When you write down all the information, you can see the calculations in detail. They include a point value depending on the size of the contract. The calculator will also show you a spread, a long swap and a short swap. The margin reveals the amount of possible income.
While calculators are useful for quickly defining profit or loss, you should also be careful. The actual numbers may differ slightly, but this difference is usually insignificant.
Make your trading more efficient
One of the main parts of trading is the amount of profit and loss you get. If you don’t analyze these numbers, you could be at risk at some point. Profit and loss calculations are easier nowadays, like trading itself. You can do this manually if you want to get a result quickly or use a calculator for a more complete answer. Calculating profit and loss before and during the trading session makes it more efficient. You can use this guide and the FBS calculator to help with this process.