Forex Caltulating Profit & Order Tipe

As we have specified in earlier page, in order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size (how many lots), leverage used, and the actual rate of the pair for which you want to calculate the pip value.

Calculation Formula for currencies with USD as quote currency (or X/USD such as EUR/USD, GBP/USD, and AUD/USD)

(Selling Price - Buying Price) x lot size x number of lots = Profit / Loss

Example :

* Buy 3 standard lots EUR/USD at 1.2000
Sell (liquid) 3 lots EUR/USD at 1.2010
Profit = (1.2010 - 1.2000) x 100.000 x 3 = $300
* Sell 1 standard lot GBP/USD at 2.0001
Buy (liquid) 1 lot GBP/USD at 2.0000
Profit = (1.2001 - 1.2000) x 100.000 x 1 = $10

Simple method :
As you can see from example number 1 and 2, for every standard lot (100K) the profit is $10/pip.

How to calculate profit per pip ? Profit/pip = total profit / total pips

* Example number 1 : $300/3 = $10/pip
* Example number 2 : $10/1 = $10/pip

Conclusion : (applies for x/USD Pair only !)

* For every 1 standard lot, profit (loss) = $10/pip
* For every 1 mini lot, profit (loss) = $1/pip
* For every 1 micro lot, profit (loss) = $0.1/pip

Calculation Formula for currencies with USD as base currency (or USD/X such as USD/JPY and USD/CHF).

[ (Selling Price - Buying Price) / Closing (liquidating) Price ] x lot size x number of lots = Profit / Loss.

Example :

* Buy 1 standard lot USD/JPY at 110.00
* Sell (liquid) 1 lot USD/JPY at 110.01
* Profit = [ (110.01 - 110.00) / 110.01 ] x 100.000 x 1 = $9.09

Calculation Formula for mixed currencies (such as EUR/JPY) [ (Selling Price - Buying Price) / USD/JPY Closing Price] x lot size x number of lots = Profit / Loss

Example :

* Buy 1 standard lot EUR/JPY at 162.70
* Sell (liquid) 1 lot EUR/JPY at 162.71 USD/JPY closing price of the previous day is 118.10
* Profit = [ (162.71 - 162.70) / 118.10 ] x 100.000 x 1 = $8.47

Please note :

If you open a Buy position (going Long), you will open with offer price, and will have to use bid price while selling it back (liqudating, closing, stop loss, and taking profit)

If you open a Sell position (going Short), you will open with bid price, and will have to use offer price while selling it back (liqudating, closing, stop loss, and taking profit)

Profit Target, Stop Loss, and Trailing Stop

Profit Target is a target point at which you want to liquidate your position in profit automatically, when the market price hits it. This means, you dont have to monitor your open positions all the time, just set a profit target, and once market price hits it, your position will be closed in profit automatically.

Stop Loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses if the market moves against an investor's trade.

* If you open a Buy or Long Position, profit target level should be placed Higher than opening price.
* If you open a Sell or Short Position, stop loss level should be placed Lower than opening price.

Example :

* Buy (Long) EUR/USD 1.2000 (offer price)
* Profit Target 1.2050 (50 pips profit target, bid price)
* Stop Loss 1.1950 (50 pips stop loss, bid price)
* Sell (Short) EUR/USD 1.2000 (bid price)
* Profit Target 1.1950 (50 pips profit target, offer price)
* Stop Loss 1.2050 (50 pips stop loss, offer price)

Trailing Stop is an kind of stop loss. This function enables you to automatically set stop loss level whenever the profit you got has exceeded the minimum trailing stop level. If the profit has not exceeded minimum trailing stop level, it will not work ! Please keep in mind that trailing stop usually is executed directly from your computer (client software), not your broker's server so it is highly recommended to put a stop loss besides trailing stop.

The objective of trailing stop is to protect your profit if the market moves against your position so the profit will never go anywhere.

If Trailing stop level is set to 10 pips. Right after your position has reached profit more than trailing stop level (more than 10), then the stop loss will be set to 10 pips away from your open position to protect your profit . Lets say you have already got 10 pips profit, then trailing stop will put a stop loss to 0 (10 pips away from open). If your profit is 20, then stop loss will adjust the stop loss to 10 points profit (still 10 pips awa from open).

Example :

Trailing stop = 10 pips, You open a buy position at 1.2000, suddenly price moves to 1.2010, trailing stop set a stop loss at 1.2000 (Break Even). Market keeps moving to 1.2020, trailing stop level will be adjusted to 1.2010 (10 pips profit), and so on.

Basic Forex Order Types

There are 3 basic order types to trade currencies. They are called Market Order, Stop and Limit Pending Orders.

Market Order is an order to go Long (Buy) or short (Sell) at the current market price. You can't edit these rates.

Example :

Your trading software shows a quote for GBP/USD is at 1.9996 (bid)/2.0000 (ask). This means you can order a buy position at 2.0000 or you can order a sell position at 1.9996 at the moment.

But if you are willing to place an order at different price, you need to use Stop or Limit Pending Orders.

Stop Pending Order :

There are 2 benefits of using Stop Pending Orders :

* Stop Buy Order is used when you want to Buy above the current market price. Example : Current price is at 1.2000, and you want to Buy only if the market hits 1.2050. You can set a Stop Buy at 1.2050.
* Stop Sell Order is used when you want to Sell below the current market price Example : Current price is at 1.2000, and you want to Sell only if the market hits 1.1950. You can set a Stop Sell at 1.1950.

Limit Pending Order :

There are 2 benefits of using Limit Pending Orders :

* Limit Buy Order is used when you want to Buy below the current market price.

Example :

Current price is at 1.2000, and you want to Buy only if the market hits 1.1950. You can set a Limit Buy at 1.1950

* Limit Sell Order is used when you want to Sell above the current market price

Example :

Current price is at 1.2000, and you want to Sell only if the market hits 1.2050. You can set a Limit Sell at 1.2050