Monday, November 2, 2009

4.3 Forex Calculus : Calculating Profit and Loss

Many FOREX trading platforms offer their clients a variety
of online utilities that assist the investor in his or her trading
Because all profits are expressed in U.S. dollars, a key factor
in the calculation of profit and loss is the currency pair and 
whether the USD is the base currency or the quote currency,
or if the currency pair is a non-USD cross rate.
Remember that the first currency in a currency pair is called 
the base currency (determines the number of units traded)
and the second is called the quote currency 
(determines the pip values of each price change).
Throughout the global spot currency market the term current price
is normally defined as:

Current Price =(Ask Price + Bid Price)/2

TIP: Always make sure that what you mean by any term 
is the same as what your broker-dealer means by that term.
Definitions do vary, usually slightly.
But even a small difference can lead to an error.

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