FOREX PIP Profit & Loss Calculation
Let's assume
you are trading the US Dollar and Japan Yen currency pair. You want to buy
US Dollars and Sell Japanese Yen. The rate you are quoted is 116.70/116.75 because you are buying the US you will
be working on
the 116.75 rate, which is the rate at which traders are prepared to sell. So you buy 1 lot of $100,000 at 116.75. A few hours
later the price moves
to 116.95 and you decide to close your trade.
To close your trade you ask for a new quote and are quoted 116.95/117.00, as you are now
closing your
trade, and you initially bought to enter the trade, you now sell in order to close the trade and you take 116.95 the
price traders are
prepared to buy at. The difference between 116.75 and 116.95 is .20 or 20 pips. Using our formula from before, we
now have
(.01/116.95) X $100,000 = $8.55 per pip X 20 pips =$171
here is an example of the EUR/USD where you decide to sell the EUR and are quoted 0.9885/0.9890, you take 0.9885. Now don't get
confused here.
Remember you are now selling and you need a buyer. The buyer is biding 0.9885 and that is what you take. A few
hours later the
EUR moves to 0.9805 and you ask for a quote. You are quoted 0.9805/0.9810 and you take 0.9810. You originally sold
EUR to open
the trade and now to close the trade you must buy back your position.
In order to buy back your position you take
the price traders
are prepared to sell at which is 0.9810. The difference between 0.9810 and 0.9885 is 0.0075 or 75 pips. Using the
formula from
before, we now have (.0001/0.9810) X EUR 100,000 = EUR10.19: EUR 10.19 X Exchange rate 0.9810 =$9.99($10) so 75 X
$10 =
$750.
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