How to Calculate the Profit or Loss (P&L)

You do not have to calculate your profit or loss yourself. Your profit or loss is calculated automatically in real time and displayed on your trading platform. But it is useful for you to know how the figures are computed.

Profit or loss = pips profit or loss x lot size

Let's assume EUR/USD is quoted as follows:

Let's buy 1 lot. (i.e. 100,000) at 1.1702.

A few hours later the price moves to 1.1752. You decide to close your trade and take your profit.

The new quote for EUR/USD is: Sell 1.1750 / Buy 1.1752

Since you initially bought to enter the trade, you now have to sell in order to close the trade. You must take the 1.1750 sell price. The difference between 1.1702 and 1.1750 is .0048 or 48 pips.

Hence, you made 48 pips profit.

Your actual profit in dollars = pips profit or loss x position amount = 48 x 100,000 = $480

If your account is expressed in EUR, you will want to calculate your profit in euros. The dollar profit will be converted into EUR using the average of the closing sell and buy price.

In the above example, the US$480 profit is converted into EUR using the average of the sell price (1.1750) and the buy price (1.1752) = 1.1751.

The profit in EUR is therefore US$480/1.1751 = EUR408.47

Remember, when you enter or exit a trade, you are subject to the spread in the sell/buy quote. In the above example, the spread is 2 pips (1.1700 - 1.1702). The spread is really the cost of the transaction (which is your broker's main source of revenue).

When you buy a currency, you pay the spread as you enter the trade but not as you exit. And when you sell a currency you don't pay the spread when you enter but only when you exit.