In live forex trading, having a solid understanding of your profit and loss (P&L) potential at any given time is a must. It is simply not enough to place a trade and hope for positive results. Quantifying the upside of an open position, as well as its downside liability, is a great way to ensure consistent and responsible risk management.
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However, completing this task amid rapidly evolving forex conditions can be a challenge. Every currency pair is unique, as are trade-related variables such as applied leverage1 and account denomination. This is one area where the functionality of the Profit Calculator excels. It combines all relevant factors automatically to provide a clear-cut picture of a trade's financial impact.
Using The Profit Calculator
The Profit Calculator is a sophisticated tool designed to help the active trader stay on top of profit and loss. Through combining basic arithmetic and algebra calculations, it instantly derives a P&L value for each unique trade setup.
Here is a breakdown of the inputs necessary to the robust functionality of the Profit Calculator:
- Currency Pair: A wide range of pairs are available, including the majors, minors, crosses and exotics.
- Account Currency: The preferred currency of the trading account.
- Action: A simple designation of whether the position is long or short, opened via buy or sell command.
- Trade Size: In order to determine the per pip value of each trade, the applied leverage must be defined. Standard, mini and micro lot sizes are some of the most common allotments used in the Profit Calculator.
- Opening Trade Price: The price point at which a new position was opened and market entry was obtained.
- Closing Trade Price: The price point at which the open position was closed out and market exit was achieved.
It is critical that active traders understand the profit potential and assumed liability of every new position opened in the live market. The Profit Calculator accomplishes this task automatically after the user provides all necessary inputs. For instance, gross profit is quickly calculated for the following trade involving the EUR/USD:
|Opening Trade Price||1.1425|
|Closing Trade Price||1.1435|
One of the more useful aspects of the forex Profit Calculator is that a trade's bottom line is presented in black and white. Taking into account the unique pairing, assumed leverage, account denomination and market entry/exit prices, the projected profit for the above trade is €87.60.
Calculating the liability of a EUR/USD position using the forex Profit calculator is also a straightforward process:
|Opening Trade Price||1.1425|
|Closing Trade Price||1.1415|
Through adjusting the Entry Price and Exit Price, the downside risk may be automatically calculated for any trade in question. In this manner, the Profit Calculator may be used to develop accurate risk vs reward ratios, promoting the principles of proper money management.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…