Calculating Profit or Loss (P/L) in trading is essential for risk management and evaluating trading performance. The calculation considers factors like entry price, exit price, volume, contract size, and currency conversion when necessary.
Formula for Profit/Loss Calculation
P/L (buy) = (Close Price−Open Price) * Volume * Contract Size
P/L (sell) = (Open Price−Close Price) * Volume * Contract Size
Where:
🔹Close Price – The price at which the trade is closed (exit price).
🔹Open Price – The price at which the trade was opened (entry price).
🔹Volume – The number of units of the base currency that are traded.
🔹Contract Size – The standard unit per lot (e.g., in forex 100,000 for standard lots, 10,000 for mini lots, and 1,000 for micro lots).
Important: when you place an order, the execution price depends on the trade direction:
🔹A Buy order is opened at the Ask price and closed at the Bid price.
🔹A Sell order is opened at the Bid price and closed at the Ask price.
Example Calculation: EUR/USD Trade
- Trade: Buy 1 standard lot of EUR/USD
- Open Price: 1.1500
- Close Price: 1.1550
- Contract Size: 100,000
P/L = (1.1550 −1.1500) * 1 * 100,000
P/L = 0.0050 * 100,000 = $500 Profit
Converting Profit/Loss to Account Currency
If your account currency differs from the quoted currency, you need to convert the P/L to your account currency using the exchange rate.
For example:
🔹P/L in EUR: €500
🔹Account Currency: GBP
🔹EUR/GBP Rate: 0.8500
P/L in GBP = 500 * 0.8500 = £425
Why is it important to calculate Profit/Loss accurately?
🔹 Better risk management – Helps traders assess trade outcomes before executing positions.
🔹 More effective strategy planning – Enables traders to set realistic targets and stop losses.
🔹 Understanding leverage impact – Helps control the risks associated with leveraged trades.
How Eurotrader helps with Profit/Loss calculations
At Eurotrader, we provide:
🔹Advanced charting tools to monitor real-time P/L changes.
🔹Risk management features, including stop-loss and take-profit orders, to protect your capital.
Need more details? Our support team is always here to help.
Open an account with Eurotrader today!
