Forex, one of the most recommended markets for investment, can bring high profits when the right strategies are applied. The aim is to make a profit by selling instruments bought at low prices when the price rises. However, although investors trade in the market for the purpose of making money, sometimes things do not go as planned. In our content, we have included detailed information about calculating profit and loss in forex.
When it comes to money, more sensitivity is shown in terms of profit and loss. In forex, which is known for its advantages, the investor tries to increase their earnings by minimizing the risks. However, when things go wrong, losses are inevitable.
How to Calculate Profit and Loss in Forex?
Of course, it is an undeniable fact that the purpose of investing in the Forex market is to make money. For this, traders must have information about their profits and loss. Profit and loss management and calculation in Forex is one of the most important issues for an investor.
Investors can open a profit and loss account quite simply. It will be enough for them to know how to make four transactions with the values of the exchange rates.
As it is known, there are a wide variety of investment instrument options in forex. You can trade in pairs with the instrument you want. You make your profit and loss account based on the relative value of these pairs.
There are a few key points you should know before calculating your profit and loss. The first of these is that investment instruments are traded in pairs, that is, in parity. The concept of parity refers to the ratio of one currency to another currency.
For example; a person who wants to invest in Euros can make transactions over the EUR/USD parity. Here, EUR is the base currency and USD is the floating currency. Your profit and loss account is always calculated in a floating currency.
If we explain our transaction over EUR/USD parity; Let’s say you make a purchase of $1000 on the EUR/USD parity, which is 1.1850. Let’s imagine that the pair then rises to 1.1900. You will profit from this transaction. Your transaction size will be 1000 dollars and you will make a profit of 5 dollars because you made the sale with a profit of 0.005.
Let’s consider the opposite and assume that the par value drops from 1.1850 to 1.1800. In this case, you will lose 0.005 per cent. Your trade size is $1000 and your loss is $5. As can be seen, the profit and loss situation is calculated in USD in the variable currency EUR/USD parity.
Let’s do the same with gold; The representation of the gold–USD parity is XAU/USD. Since the floating side is still in USD, your profit or loss will be in USD.
Let’s say you bought 100 ounces of gold when the XAU/USD parity was 1245.1. Let’s say the value then rises to 1250. You will have a profit of 4.9 per cent. Here, your profit can be $490 as your trade size is 100 ounces.
When your investment account is in dollars, the profit and loss account is converted to dollars as a result of the transaction in parities such as AUD/CAD.
E.g; Let’s say you buy 1000 CAD while the AUD/CAD parity is at 0.9893. Then, let’s assume that the pair rises to the level of 0.9900. You make a profit of 0.0007 per cent.
Since your trade size is 1000 CAD, your profit is calculated as 0.7 Canadian dollars. However, since our account is in US dollars, we need to convert over USD/CAD parity. If we consider that the USD/CAD parity is 1.3104, a profit of 0.91 dollars comes out from the transaction we calculated as 0.7*1.3104.
What to Make a Profit in the Forex Market?
Thanks to the advantageous trading features of the Forex market, you can make more profit compared to other markets. There are some paths you should follow to achieve steady success in these markets. Of course, you also need to know how to do this.
First of all, no matter which market you will trade, you should know yourself and determine whether you have a profile suitable for investment. Many details such as your expectations, how much risk you can take, the amount you want to earn will be important at this point. Even your personality traits and current mood affect your success.
You should start by learning about the forex market. By participating in free training given by Forex companies, you can easily have this information and make a healthy investment. In addition to evaluating educational opportunities, you can learn what you don’t know about forex from books and videos.
If you have good knowledge and become an experienced investor, you can trade profitably. For a successful investment, you also need to have knowledge about investment instruments and be able to correctly interpret why and how prices are affected. The main condition for this is to be a good market follower and analyst.
It can be said that an investor who correctly understands in which direction the prices will move and makes his transactions accordingly is on the right track. The price movements you predict correctly will contribute greatly to your profit. If your predictions are far from the truth and you make a wrong trade, this will make the loss inevitable.
By setting a strategy for yourself, you can handle your forex transactions more easily with minimum risk. At this point, you need to use trial accounts and develop the best methods for yourself.
Profitable Investment Features of Forex Market
Forex, which is a market with high trading volume and high liquidity, is a lucrative investment market where profit and loss can be controlled. It attracts attention due to its features and its popularity is increasing day by day.
Forex is the financial market that offers the best opportunities among today’s financial markets and is traded in the safest way. You often hear from your environment that you should prefer forex instead of the stock market. Because these markets can turn even a small amount into big profits due to the high transaction volume.
People who want to invest can start trading in the market with collateral as low as $100 and can increase their earnings to higher amounts in a short time by applying the right methods.
Forex market is generally referred to together with foreign exchange markets. However, in forex, which is very rich in terms of investment instrument diversity, commodities, stocks and world-famous stock market indices are also traded in addition to the currencies of all countries of the world. In addition, these instruments are traded under better conditions compared to stock markets and can bring higher earnings.
In this case, it would not be wrong to say that the most suitable market for those who have a small amount of savings and want to use it in the financial markets is the forex market. The reason for this is the trading mechanism of forex, which is very different from other financial markets.
For example; In other financial markets, money is made from the investment instrument that will only gain value, while in the forex market, income is obtained from the investment instrument that will both increase in value and depreciate. This method, called bidirectional trading, provides advantages to investors.
Every small, medium and large-scale investor who wants to evaluate their savings can find a suitable investment tool in the forex market. Many of the commercial goods called commodities can be owned at low prices and high profits can be obtained thanks to the leverage system.
For instance; silver is a low-priced commodity, and if a profit of 10 USD is made with the application of leverage ratios, a profit of 1000 USD can be made.
Thanks to the system that makes it possible to trade in real market conditions with virtual money called demo account, gaining experience will guide investors on how to make profitable transactions.
How to Limit Profit and Loss in Forex?
No investor wants to make a loss from the transaction he has put a lot of effort into. But sometimes, for reasons beyond his control, he may lose more than he can bear. The maximum loss that each investor can bear is at different levels.
By trading in virtual accounts through intermediary institutions, both the market is experienced and the current risks are realized. Forex traders have the advantage of limiting risks.
With limited orders, it is possible to limit your profit and loss in the forex market, thus making more planned transactions. By using this method, investors can limit their profit and loss to the level they want. Thus, in case of a possible loss, they feel safe and can have the chance to have maximum profit with minimum risk.
In forex, where prices are constantly changing, there is always the possibility of instant loss due to this situation. Here, limited order types help to minimize your inconvenience. In addition, you will panic less in the face of an unexpected situation and you will know what to do.
What are the Benefits of Calculating Profit and Loss in Forex?
The profit and loss account, which is very important for the Forex investor, provides many benefits. First of all, determining how much you have gained or lost from which transaction will encourage the person to take measures against it. A person who takes action without knowing this cannot achieve success because they proceed unplanned and unscheduled.
People who want to have a logical investment process must make the profit and loss account correctly. An investor who makes it a habit to do this after every trade should proceed with their strategic plans and be able to close them if their losses are constantly exceeding their profits.
It is very important for the investor to know where they made a mistake so that they do not repeat the same in their next transactions. If profit is made from the trade, the investor can follow the same path and be successful in the next trades. It also increases self-confidence.
Conclusion
Since forex is a method of making money and therefore trading, the calculation of profit and loss is of great importance. If money is already in question, money calculation comes into play even in simple grocery shopping.
We have explained in detail above that you can easily calculate profit and loss in the forex market by taking into account the changes in the values of the instruments after the purchase and using your four trading skills.
There are many basic concepts you need to know in forex, where we talk about its many advantages and different trading features. Without knowing these, you cannot be expected to calculate the profit and loss correctly.
It is recommended that you do not start forex transactions without clarifying the issues you are unfamiliar with. By taking advantage of the free training, you can easily limit the risks that may occur in the market and make safe transactions.
You need to know that wherever money is involved, there is also risk. You cannot deal with these risks without having knowledge and experience. Knowing your profit and loss is necessary at every moment of your investment.
SEE MORE: Complete Guide to Forex Trading
