How to calculate the profit and loss of foreign exchange transactions?
The following example will demonstrate the method and process of calculating foreign exchange trading profits and losses for you:
Assuming the current EUR/USD quote is 1.4616/19, it means you can buy 1 euro for $1.4619, or sell 1 euro and buy $1.4616 at the same time.
Assuming you predict that the euro will appreciate against the US dollar, you are willing to buy EUR (while selling USD) and wait for the exchange rate to rise.
So, you bought 100000 euros (100000 x 1.4619) for $146190. Using a 1:100 margin leverage, your margin account needs to have $1461.
As expected, EUR/USD has risen to 1.4623/26. To achieve profits, you sold 100000 euros at a price of 1.4623 and earned $146230.
You previously bought 100000 euros for $146190 and now sell 100000 euros to exchange for $146230. The difference between them is 4 points, which is $40 ($146190-146230=$40).
Total profit: $40
In the same example, suppose you are still buying 100000 euros for $146190 at a EUR/USD quote of 1.4616/19.
However, this time EUR/USD fell to 1.4611/14. To reduce losses, you chose to enter this price range by selling 100000 euros and exchanging it for $146110.
You previously bought 100000 euros for $146190, but now sell 100000 euros and exchange it for $146110. The difference between them is 8 points, which is $80 ($146190- $146110=$80).
Total loss: $80
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