How Are Forex Profit / Loss Calculated?
Inexperienced traders often amenable desire to maximize profits in a short time. They make a hasty deal with the highest risk and most often lose money. Forgetting about the basic rules of money management novice traders consistently reduce their deposit. To avoid such consequences the trader must calculate the possible profit and loss during the bidding process, and sometimes prior to the opening of the lot. So it is important to learn how to count Forex profit. This ability will help you to create a trading system, to plan day trading and improve your overall competence.
In the Forex market uses different types of financial instruments, mostly different kinds of currency pairs. The most popular currency pairs are EUR/USD, GBP/USD and AUD/USD, there is also a reverse quotes and cross rates. The amount of Forex profit depends on the type of currency pair (the quote) and on the amount of transaction. Direct steam means the base currency exchange for your deposit currency. Reverse quote means the base currency is your deposit currency (usually the US dollar). Cross course is characterized by the absence of the dollar in the currency pair.
Calculation Forex profit on direct quotations comes from the formula: (Opening price – closing price) * contract size * volume. The calculation formula for the reverse quote is as follows: (Closing price – opening price) / closing price * amount of contract * value of lot. Forex Profit calculation for the cross rate comes from the formula: (Opening price – closing price) * base currency rate * closing price * the size of the contract*lot value. These three are not complicated formulas will help you to plan future business, to predict possible profit and loss, which in turn have a positive impact on trade efficiency.