On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market. One can easily make an average profit of $100 per day by investing $5,000 and setting a risk of up to $50 for each trade. Substantial returns like this are one of the reasons Forex trading is seen as a great opportunity by traders and investors around the globe.
For a chance at successful Forex trading, profits matter the most. Going head first into Forex trading without calculating how much profit you can earn and how much is at stake can be an extremely dangerous move. You can either make these calculations yourself or use a free Forex Profit Calculator online.
Realised profits are the ones that are gained from completing a trade in the Forex market. Already deposited in your trading account, they can be withdrawn to your bank account anytime.
Similar to realised profits, a realised loss is incurred by selling the currency pair for less than the original purchase price. Since the trade has been exited, you ought to bear the loss.
Unrealised profits are possible gains upon exiting a currently open trade. It is valued at the current market prices and is not added to your trading account balance unless you exit the trade.
Similar to unrealised profits, unrealised losses are possible losses that you can incur if you exit an open trade. It is a decrease in the currency pair's price compared to the opening price. An unrealised loss becomes realised as soon as you close your position.
A profit is an increase in the currency pair's value compared to the value you purchased it at. A Forex profit calculator measures the profit or loss of a trade. It requires you to have the position size of the trade and the number of pips at which the price has moved. The total profit or loss is the position size multiplied by the pip movement or the change in the currency pair’s price.
How to calculate profit in Forex
The current rate for GBP/USD is 1.9517/1.9522, where 1.9517 is the selling price and 1.9522 is the buy price. This makes the spread equal to 0.0005.
You can multiply the spread by 1/100th of 1% to get the number of pips. In this case, it is 5 (0.0005*10,000=5).
You could sell 10,000 GBP at 1.9517 for 19,517 USD (10,000 GBP*1.9517=19,517 USD).
Once the trade is completed and if the market drops to 1.9500/1.9505, you could decide to buy back the 10,000 GBP at 1.9505 as the currency has become stronger. This gives you a total of 19,505 USD to be given away for 10,000 GBP (10,000 GBP*1.9505=19,505).
Hence, you sell 10,000 GBP for 19,517 USD and buy back 10,000 GBP for 19,505 USD. This strategy gives you a profit of 12 USD (195,17-19,505) from single trade.
How to calculate loss in Forex
Assuming the current rate of EUR/JPY is 100.00/100.05, where 100 is the selling price, and 100.05 is the buy price, with the spread at 0.05.
You see the EUR gaining strength, so you decide to buy 10,000 EUR at 100.05. To buy 10,000 EUR, you need to sell 1,000,500 JPY (10,000 EUR*100.05=1,000,500 JPY).
Due to some unforeseen circumstances, the market falls to 99.45/99.50. This makes you go short and sell back the 10,000 EUR at 99.45. This gives you 994,500 JPY (10,000 EUR*99.45=994,500 JPY).
This incurs a loss of 6,000 JPY (1,000,500–994,500).
Analysing long and short positions
If the prices move up in a long position, you earn profit. However, when the prices move down during a long position, you incur losses. As per our example with a long position in GBP/USD, you end up earning profit from the rising pricest. On the contrary, there would have been a loss if the price fell.
When you are planning to sell a currency pair during a short position, prices going up incur losses. Whereas, when the prices go down, it is considered to be a profit. Had we short EUR/JPY initially in our previous example, the falling prices would have profited us. Alternatively, rising prices would have given us a loss.
Knowing how to calculate profits and losses is one of the most important things that a trader must know before entering the market. Blueberry Markets has a free Forex Learning Program where you can learn different trading concepts in detail.
Take a look and sign up for a trading account on Blueberry Markets today.
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