Posted by forex at 9:26 AM
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1. Establish which currency is the base currency and which currency is the quote currency. Exchange rates are quoted in pairs with the first currency referring to the base currency and the second currency referring to the quote currency. For example, if the currency exchange rate being quoted is EUR/USD 1.2718 means the Euro (EUR) is the base currency and the U.S. dollar (USD) is the quote currency.
2. Record the exchange rate at which you purchased the base currency. For example, you might decide to buy 100,000 Euros using U.S. dollars when the exchange rate for the EUR/USD was at 1.4195.
3. Calculate the net gain or loss on your transaction by subtracting the exchange rate at which you purchased the base currency from the exchange rate at which you sold the base currency and than multiply this difference by the transaction size. For example, if you purchased 100,000 Euros, the base currency, using U.S. dollars, the quote currency, when the EUR/USD exchange rate was at 1.4915 and than sold those Euros when the exchange rate increased to 1.4200 you would have a total net gain of $5 USD on your transaction. Subtract 1.4195 from 1.4200 and than multiply this difference by the transaction size of 100,000 to arrive at your $5 net gain.