Posted by forex at 9:43 AM
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It's Just Simple Math
1. Write out this simple formula on a paper pad: Profit = Price Change in Pips x Units Traded. For example, if your Forex broker requires a 1% margin for you to trade any currency pair, then you can control up to $100,000 with $1,000. So, in this example, if you buy 10 lots of a given currency pair to go long, then you control over $1,000,000 in this currency. Mark down the number of lots you have traded for the 'Units Trading' component of the equation.
2. Use the same example as if you were buying a currency pair at price of 1.25 to go long and then make note of your entry price.
3. As the trade progresses, you then sell it at 1.40. Then you will have made 15 percentage in points, or pips. A pip is the smallest change of price for any foreign currency listed on the Forex. On a standard Forex lot, a pip is equal to $10 when the USD is the quote currency, so you will have earned $150 (15 pips X $10 per pip) per standard Forex lot in this example.
4. Using the Profit = Price Change in Pips x Units Traded formula to calculate Profit/Loss, your calculation would break down as $1,500 = 15 Pips gained x 10 Standard Forex Lots.