Foreign Exchange (Forex)

Calculating Profit And  Loss Using Pips In Forex Trading

  Pip is the smallest point to calculate price changes in forex trading. Therefore, the accumulated gains and losses during the current position following the price movement in forex are calculated in Pip units. One pip tip value varies depending on the currency pair being traded as well as the current exchange rate. Thus, one pip point on EUR / USD will be different from the value of one pip in USD / JPY.

Before calculating the pip, we must first know the size of the contract in trading. Forex trading can not be done per one Dollar, but based on the size of a particular contract. Generally, there are three types of contracts:

Standard contract: 1 lot = 100,000 units (one hundred thousand units, if we trade with US Dollar base currency, it can be called one hundred thousand USD).

Mini contract: 1 lot = 10,000 units (ten thousand units; if we trade with US Dollar base currency, it can be called ten thousand USD).

Micro contract: 1 lot = 1,000 units (one thousand units; if we trade with US Dollar base currency, it can be called a thousand USD).

When opening an account at a broker, the trader will determine the amount of the contract for his trade. After that, if you want to trade, then use lot count, whether to buy or sell 1 standard lot, 1 mini lot (0.1 standard lot), or 1 micro lot (0.01 standard lot), or more.

For example, when we will open a buy position in EUR / USD pair, then we will buy one lot of base currency for the exchange rate shown by the current price. For example, currently EUR / USD shows exchange rate (exchange rate / price) 1.05000, that means every 1.05 US Dollars can be redeemed for 1 Euro. In practice, if you buy one standard lot of EUR / USD, then it is actually worth 100,000 base currency, multiplied by the exchange rate. Similarly if 2 micro lots, then that means 2,000 times the exchange rate .

Candlestick chart/pips

However, despite its capital in foreign currency, the price movement of each currency pair is calculated in units of Pips. If so, then how to calculate forex profit? Here's how.

Calculating Profit Forex For Major Pair

Pair Major is the name for the currency pair with the highest liquidity and trading volume in forex. The Major Pair always includes the US Dollar as its base currency or quote currency. Here are some examples of calculating forex profit in Pair Major:

a. Direct Pair

Direct Pair is the major pair with USD as its quote currency, such as GBP / USD, EUR / USD, AUD / USD, and NZD / USD. Here's how to calculate forex profit in its pip:

Pip = lot size * tick size

Next, to calculate the profit and loss we need to know the difference between the exchange rate when the position opened and closed.

Fortunately or loss =

Difference in exchange rate * pip

Information:

Lot size: number of base currency units

Tick ​​size: position the pip in a row of numbers behind the decimal

Example of calculating forex profit in Direct Pair:

Currently the pair EUR / USD shows the exchange rate worth 1.08250, then 1 pip in lot trading standard is worth:

Pip: 100,000 (standard lot) * 0,00010 = 10, so every 1 pip in EUR / USD with 1 standard lot is worth USD 10

Pip: 10,000 (mini lot) * 0.0001 = 1, every 1 pip on EURUSD with 1 mini lot worth 1 US Dollar.

Because each pair of direct quote currency is always USD, then the pip value will always be the same on all pairs with US Dollar in the back position. Simple, right?

Next, it is known that the sell position opened at 1.08250 and closed at 1.08100 with standard trading lot. The price difference at that position is 15 pips. Since the price actually goes down, then the sell position is profit, so the profit calculation is: the difference of pip * value per pip = 15 pip * USD 10 = USD 150

b. Indirect Pair

Indirect pair is pair with USD as base currency, such as USD / JPY, USD / CHF, and USD / CAD. How to calculate forex profit in its pip is:

http://www.seputarforex.com/belajar/forex/text_dasar/img/counting-advantages-and-advantages-from-pips-di-forex-4.jpg

Information:

Current rate: current exchange rate

Example # 1:

Currently the pair USD / JPY shows the exchange rate worth 111,500, then 1 pip in the standard lot is worth:

pip = 100,000 * 0.01 / 111.50

pip = USD8.97 or about USD 9

Next, it is known that a buy position opened at 111,500 and then closed at 112,500 on the standard lot. As prices rise, then the buy position is profitable.

Profit calculation = difference of exchange rate * pip

Fortunately = 100 * 8.97 = USD 897

Example # 2:

Currently the pair USD / CAD shows the exchange rate worth 0.75500, then 1 pip in the standard lot is worth:

pip = 100,000 * 0,0001 / 0.75500

pip = USD 7.55

Given the sell position opened at 0.75500 then closed at 0.75450 in the standard lot. Because prices fall, then the position is profitable.

Good thing = 5 * 7.55 = USD38

Calculating Forex Profit In Pip For Pair Cross

Pair Cross is currency pairs that do not match the US Dollar as its base or quote currency. Pair Cross movement in certain situations can be very high, even more drastic than Pair Major.

Example:

Currently EUR / GBP is trading at 0.85500, while EUR / USD is trading at 1.07500. Then the value per pip in the standard trading lot is:

Pip = 100,000 * 0.0001 (1.07500 / 0.85500)

Pip = 10 (1.257) = USD12.57

Known a buy position opened on EUR / GBP 0.85500 then closed at 0.85570 in standard lot. Because prices rise, then the position is profitable. The difference is 7 pips, so fortunately is 7 * 12.57 = USD 87.99

Additional information:

For pair Cross with Quote Currency JPY (JPY position behind like GBP / JPY, NZD / JPY, etc.) calculation of profit and loss in pip following USD / JPY. So if current USD / JPY 1 pip is worth USD 9.1 then all pair cross with Quote Currency JPY follow the pip value.

Lazy Count, Fuss? Quiet, Many Alternatives

The above calculations do require considerable time-consuming calculations. Not to mention the fact that prices are constantly changing in the Forex market. Therefore if you want to reduce your stress level, use the Pip Calculator. Guaranteed simple, fast and do not wear dizziness.

In addition, trading tools provided by forex brokers are usually able to automatically calculate the conversion of Pips to Dollars. You are trading enough, profit pips will be obtained will also appear in the form of Dollars. This you can see for yourself if you open a Demo account, the account in forex brokers that can be used to view market conditions and practice trading without capital and without risk

Margin and Leverage

From this explanation, maybe you feel scared. If once buy must be at least 1 lot, it must have thousands of US Dollars first? Not really.

Forex brokers provide a facility called leverage. Leverage is a proportional loan scheme with a guarantee, so it can increase the purchasing power of funds owned trader. For example a broker offers 1: 100 leverage, meaning trader with 10 USD capital can have purchasing power of 1000 USD (from 10x100). In this case, 10 USD becomes a guarantee fund (Margin) that traders need to hand over to the broker. This is one of the advantages of forex trading that allows us all to transact in the forex market.

Although the profit will also be adjusted in proportion to the leverage used by traders, but obviously the capital required traders to start earning money from forex is very low.