How To Calculate Forex Profits From Percentage in Points
Currency trading involves buying and selling one asset for another, typically foreign currencies. The potential profits vary according to the initial amount used to trade (lot size) and the price movements, measured in points, called pips (points in percentage). This knowledge is essential for all investors, as it helps you track your profits (floating or realized) when trading.
What Are Forex Pairs?
Foreign currencies are typically listed in pairs by brokers, so traders simultaneously buy and sell the base and quote currencies, respectively. The exchange rate of the base to the quote currency is written as the market price, which fluctuates as buyers and sellers trade. In forex trading, pairs are categorized into major (the most traded), minor (crosses), and exotic pairs; this is essential information for calculating pips.
Forex traders calculate their profits using the decimal change in price, measured in pips. One pip is the 1000th part of a currency pair’s price (prices are usually written in four decimal places, except for the Yen pairs and Gold). A pip is the smallest unit of the difference between the bid and ask prices in forex trading.
How To Calculate Forex Profits
For major currency pairs — like USD, GBP, and EUR — a one-pip change means the last decimal digit changes by one. For example, the EUR-USD price is 1.0897; a one-pip change will see the price increase or decrease by 0.0001, making 1.0897 or 1.0898, respectively. You could also calculate the pip to mean the difference between the bid and ask prices: 1.0894 and 1.0898, respectively. In this case, the pip change would be 0.0004 (1.0898 - 1.0894). Here’s a quick pip reference for you:
Suppose the EURUSD pair trades at 1.2345; the figures each represent values of:
- 1 = 10,000 pips
- 2 = 2000 pips
- 3 = 300 pips
- 4 = 40 pips
- 5 = 5 pips
- Example 1:
Let’s calculate the value of one pip for the EUR-USD pair, trading at 1.0898.
Recall that one pip = 0.0001; a single pip move will equal [0.0001] × [1.0898] = 0.000109 per unit of EUR-USD traded. A five-pip move will equal [5] × [0.0001] × [1.0898] = 0.0005449 per unit of EUR-USD traded.
- Example 2:
To calculate your profits, multiply the value per traded unit by the total unit for each trade. For example, in a 100,000 unit trade (one lot size), where the price moves down by five pips from 1.0898 to 1.0894, the profit will be [100,000] × [0.0005449] = $54.49.
- Example 3:
If you trade 10,000 units on GBPUSD at 1.3150, and the price increases by 15 pips, the potential profit is [100,000] × [15] × [0.0001] = 150 USD.
How To Calculate Gold Profits
Calculating profit in gold trade is slightly different due to the decimals involved; gold only has two decimals instead of four or five found in major currencies. The first method in calculating gold pips is to subtract one price from the other directly. For instance, a gold (XAU-USD) bid/ask of 2,090.00./2,030.00 will have a 60.00 pips difference.
The next step is to calculate the value of gold pips. Since 1.0 standard lot equals 100 ounces (the normal volume for gold), the gold pip value = (0.01 /gold price) × 100.
- Example:
If gold — at a price of 2,030.00 — moves one pip up, the value would be [0.01/2030] × [100] = 0.00049. If you entered the trade with one standard lot size (100,000 units), your profit would be $49.
Forex and Gold Pips Calculator
It's often fun calculating your forex pips manually, adding and subtracting pips to find your profits. There's a better way to achieve this: a forex calculator. A forex and gold pips calculator takes inputs for the price and lot size and then informs about the expected profits. There are many forex calculators online; you can choose one that's great for you and start calculating your potential profits.
Remember that the expected profits can change due to reasons such as an increase or decrease in margin, position size, and the currency of the denomination. These factors impact the final amount you may receive as profits from a trade.
Secure Your Profits
Floating PnL (profit and loss) refers to the amount available as the trade continues. A floating profit looks great but ensures you secure your profits and reduce exposure to market volatility sustained in those periods. You could use the partial profits method, which involves closing a part of your profit and allowing the trade to run afterward.
Simplifying Profit Calculations for Forex and Gold
Even though making an estimation of the possible earnings from forex and gold trading can be a little overwhelming at first, understanding pips, lot sizes, and having access to tools like online calculators certainly eases the process. Keep in mind that expected profits might not always coincide with realized ones because elements such as margin changes, position sizing, or currency denomination may play a role.