Profits Lost and MARGINS

How to Calculate Profit and Loss

We'll go through a trade example using the USD/CAD
to show how to calculate a profit or loss.

The quote of the USD/CAD is 1.0022/1.0025.

We buy 1 lot of $100,000 at the offer price of 1.0025.
Our position is now long 1.0025.

12 hours later the price goes up to 1.0085 with the new quote
showing a bid/offer of 1.0085/1.0088.

For us to sell we have to sell at the bid price which is 1.0085.
The difference from buy price (1.0025) and selling price
(1.0085) is .0060 or 60 pips.

Using our calculation from the Pip Calculation section we can see
how much profit we made;

(.0001/1.0085) X $100,000 = $9.91/pip
60 pips X $9.91/pip = $594.60


Margin

For most traders, coming up with $100,000 to trade one
lot would be almost impossible. As an alternative,
brokers will put up the required amount; in exchange
you are required to deposit a certain amount of money as
good faith. The broker holds this money in your account
to cover any loss you may incur. This is what attracts
most traders to the Forex market.

The amount of margin will vary from broker to broker. Typically
they require you deposit $1000 to trade one lot of $100,000 or 1%.

Often you will notice brokers quoting margin rates at 100:1 and
sometimes as high as 200:1