A profit-and-loss calculator helps traders calculate whether a trading position will potentially result in profits or losses. This, in turn, helps traders to determine where it is to best to set stop-loss and take-profit.
To calculate the potential profit or loss of a trading position, the calculator will take into consideration trading instrument, deposit currency, trade size, and the opening and closing price of the trade, and then, based on whether of the position type: buy or sell, the calculator will calculate accordingly.
Formula for lots:
Long = (Number of Lots * Notional Value of Lot) * (Close Price – Open price) * Account Currency Exchange Rate
(Only if the account currency is different from the denominated currency of the product)
Short = (Units * Price of product) / Leverage Factor] *Account currency exchange rate
Formula for Cash/Units:
Long = Units * (Close Price – Open price) * Account Currency Exchange Rate
(Only if the account currency is different from the denominated currency of the product)
Short = Units * (Open Price – Close price) * Account Currency Exchange Rate
To calculate potential profits or losses of a trading position, specify certain trade parameters (e.g., the currency pair, deposit currency, and trade size), the opening and closing price of your trade, and whether you buy or sell.
Example 1:
Position:Buy
Trading instrument: USDCHF
Account base currency: AUD
Trade size (in lots): 3.5
Open price: 0.95666
Closed price: 0.96543
AUDCHF rate: 0.6327
Calculations:
(3.5 * 100,000 USD)*(0.96543 CHF per USD-0.95666 CHF per USD) = 3069.5 CHF.
Prices at time of calculation
Converting to account currency:
3069.5 CHF / 0.63276 CHF per AUD = 4850 AUD
Prices at time of calculation
Example 2:
Position: Sell
Trading instrument: XAUUSD
Account base currency: USD
Trade size (in lots): 50
Open price: 1800.56
Closed price: 1891.65
Calculations:
50*(1800.56 USD-1891.65 USD) = -4555 USD.
Prices at time of calculation
Account currency matches profit/loss denomination.
Profit in trading is calculated based upon the difference between your open price and close price. For instance, to make a profit with a buy trade, you would need to buy a currency at a low price and subsequently sell it at a higher price.
A stop-loss (S/L) order is a risk management technique to restrict losses, whereby an open trading position is automatically closed once the price reaches a specified level. A take-profit (T/P) order closes an open position once it reaches a pre-defined level of profit, securing that the trader will make a profit from the specific trade.
A loss is an unfavourable outcome from a trade which occurs when the price fluctuation of a currency works against the trader. For instance, to buy a currency which then depreciates in value would result in a loss.
The answer on this question depends on various factors, such as which market you are trading (forex / shares / oil / gold), your trading knowledge and expertise, and which risk management techniques you have in place.
