How To Calculate Pips, Profits and Losses in forex trading

Calculating the Value of a Pip in Forex Trading

After understanding the concept of a pip and how to determine it in the exchange rate of a currency pair, and knowing the sizes of Forex trading lots, we will explain how to calculate the value of a pip for each currency pair, which depends on the currency pair and the lot size you are trading. Calculating the pip value is the first step before determining the profit and loss of trades.

Calculating Forex Profits and Losses in Dollars

1. Calculating Profits and Losses in Pips

Suppose you opened a buy trade for a mini lot on the EUR/USD pair at an exchange rate of 1.12515.

If the exchange rate rises to 1.12609, you will make a profit of (1.12609 - 1.12515) = 0.00094, which is 9.4 pips, considering the pricing precision is to the fifth decimal place.

If the exchange rate falls to 1.12381, you will incur a loss of (1.12515 - 1.12381) = 0.00134, which is 13.4 pips.

2. Calculating Profit and Loss in Dollars

To calculate the profit or loss in dollars, multiply the pip gain or loss by the pip value, which is $1 for a mini lot in pairs where the USD is the quote currency.

So:

• Profit in the first case: $9.40
• Loss in the second case: $13.40

As mentioned earlier, all these calculations are automatically handled by trading software, but a Forex trader should understand how their profits and losses are calculated. There's no need to perform these calculations before every trade.