Monday, November 2, 2009

4.3.2 Forex Calculus : Calculating Profit and Loss - Scenario 2

USD Is the Quote Currency (Loss) 
 This time with the GBP/USD currency pair.
In this instance, we initiated a 30,000-unit short (sell) trade in the
GBP/USD pair at 1.8863 and, sadly, it advanced against our hopes.
We exited at 1.8883, losing 20 pips. Since the quote currency 
(the second currency) is USD, we know the conversion rate is 1. 
Thus using the profit formula
Profit in USD = Price Change x Units Traded
we find that our profit is actually a loss:
-$60.00 =-0.0020 x 30000
If the above calculations are still causing some confusion,
 then reread, “The FOREX Lexicon.” As promised
before, these calculations only require 
the four simple arithmetic functions: 
addition, subtraction, multiplication, and division. 
No exponents, logs, or trig functions.
But this information must be completely clear before proceeding.
Keep in mind that it is your money at stake.

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