Forex Compounding Calculator

Forex Compounding Calculator


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Summary:

  • You started with an investment of:$ on
  • Your principal amount grew to:$ by
  • Your total payment were: $ over the term of
  • Your total NET profit for the period was: $

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Forex Calculator

How To Calculate Forex Gains and Losses

Are you a new forex trader who wants to learn a quick way to do the math involved in figuring profit and loss? If so, use this forex calculator when you’re ready to learn a few pieces of information that should give you all you need to know to understand whether a trade was a good one or a not-so-good one.

Forex Terminology

First, it’s essential to learn a few of the key terms, like “lot size,” “pip,” and “realized vs. unrealized” losses and gains. For starters, the “standard” lot size traded in forex is 100,000 units.

However, many traders either don’t have the financial leverage to trade lots that big or simply don’t want to deal with the chance of taking significant losses on a single trade.

What do they do? The trade increments of lots, in the form of .1, .01, or even .001 of a standard lot. The .1 means the lot traded is .1 times 100,000, or 10,000 units. For .01 (a favorite of many forex traders), the total units are .01 times 100,000, or 1,000 units.

When you make a trade and it’s still open and ongoing, your gains and losses are said to be “unrealized” until you close the transaction, at which point your loss or gain is “realized.” In other words, “realized” simply means it’s on the books and closed out. You either mark a loss or gain in your account at that point.

What are Pips in Trading?

A pip, which is said to be an abbreviation for “percentage in point,” is a term that refers to a specific amount of money. You’ll also hear of “points,” which are one-tenth of a pip. In most cases, the quoted numerical value of a given currency pair, the EUR/USD pair, for example, is mentioned as 1.6523 (this is just a random number for our example).

We could say it like this, because we know the EUR is the “base currency” and the USD is the “quote currency,” “I can exchange one euro for $1.6523 dollars.”

In the above example, the digit “3” represents a pip, but we must know how large of a lot we traded to know the real dollar value of the pip. So, again just an example, if we were trading a .01 lot size, which is (see above) 1,000 units, then one pip would equal .0003 times $1,000, or 30 cents.

In a full lot, 100,000 units, the pip of .0003 would equal $30. So, now that we got the terminology out of the way, how can we know whether our trade was profitable or was a loss? Here’s how, with an example.

Forex Calculator - Are you a new forex trader who wants to learn a quick way to do the math involved in figuring profit and loss?

Calculate Your Gains and Losses

Simply put, if you are long (a buyer) and the exchange rate rises, you have a gain. If you are long and the rate drops, you have a loss. Likewise, if you are short (a seller) and the rate rises, you have a loss. Conversely, if you are short and the rate drops, you have a gain.

Suppose you are long on GBP/USD with a .1 lot size, and the exchange rate moved from 1.4255 to 1.4288. First, your lot size is 100,000 units times .1, or 10,000 units. The rise in pips was from 55 to 88, or 33 pips (remember that a pip is .0001). In this case, with this lot size, each pip is worth $1, so your gain is $33 ($88 minus $55, the change in value).

Say you had traded a full lot size, 100,000, as a buyer (you’re long), and the GBP/USD rate went from 1.4255 to 1.4250. The decrease was 5 pips (55-50), and since you were long, you have a 5 pip loss. But, how much is each pip worth? Each is worth .0001 x 100,000, or $10 per pip. And, you lost 5 pips, or $50 (5 x $10).

That’s the basic way to calculate your gains and losses in forex, at least for simple transactions with most of the major currency pairs.