Understanding how to calculate profit and loss in trading is essential for managing risk and making informed trading decisions. The following formula helps determine the profit or loss from a trade based on the difference between the opening and closing prices.
Profit and Loss Calculation Formula
| Step | Calculation | Formula | Explanation |
|---|---|---|---|
| Step 1 | Find the Difference Between Open and Close Price | (Open Price – Close Price) * (10 ^ Digit) | Calculates the price movement in pips. |
| Step 2 | Calculate Pip Value | ((Contract Size * Lot) * (10 ^ -Digit)) / Exchange Rate | Determines the value of one pip in the account currency. |
| Step 3 | Calculate Profit or Loss | Pip Value * Difference Between Open and Close Price | Computes the final profit or loss based on the price difference. |
Examples of Profit and Loss Calculations
Example 1: Forex Trade (GBPUSD Buy Order)
- Order Type: Buy 0.01 lot
- Currency Pair: GBPUSD
- Open Price: 1.35443
- Close Price: 1.35400
- Contract Size: 100,000
- Digits: 5
Step 1: Calculate Price Difference
(1.35443 – 1.35400) * (10 ^ 5) = 43
Step 2: Calculate Pip Value
((100000 * 0.01) * (10 ^ -5)) / 1 = 0.01
Step 3: Calculate Profit or Loss
43 * 0.01 = 0.43
Profit: $0.43
Example 2: Forex Trade (EURCAD Buy Order)
- Order Type: Buy 0.01 lot
- Currency Pair: EURCAD
- Open Price: 1.48452
- Close Price: 1.48431
- Contract Size: 100,000
- Digits: 5
- Exchange Rate: 1.37
Step 1: Calculate Price Difference
(1.48431 – 1.48452) * (10 ^ 5) = -21
Step 2: Calculate Pip Value
((100000 * 0.01) * (10 ^ -5)) / 1.37 = 0.00729
Step 3: Calculate Profit or Loss
0.00729 * -21 = -0.15
Loss: -$0.15
Example 3: Indices Trade (UK100 Sell Order)
- Order Type: Sell 0.1 lot
- Instrument: UK100 Index
- Open Price: 7542.20
- Close Price: 7545.50
- Contract Size: 1
- Digits: 2
- Exchange Rate: 0.92
Step 1: Calculate Price Difference
(7542.20 – 7545.50) * (10 ^ 2) = -330
Step 2: Calculate Pip Value
((1 * 0.1) * (10 ^ -2)) / 0.92 = 0.00108
Step 3: Calculate Profit or Loss
0.00108 * -330 = -0.35
Loss: -$0.35
For more detailed calculations, please visit this link for profit and loss, Forex Pip Value,
