Monday, November 2, 2009

4.3.3 Forex Calculus : Calculating Profit and Loss - Scenario 3

USD Is the Base Currency (Profit)
If the quote (second) currency is not the U.S. Dollar,
then profit or loss must be converted to U.S. Dollars.
For example, a 35-pip profit in the USD/JPY pair means
that the 35 pips are expressed in Japanese Yen.
Therefore, one extra step is required to convert Yen to Dollars:
Conversion Rate.
If USD is the base currency of the currency pair
being calculated, then divide the profit or
loss by the exit price.
This simply converts the pip profit expressed as Yen 
to a profit expressed as Dollars.
 Thus, when calculating currency pairs where the base
(first) currency is the U.S. dollar, the profit formula must
be adjusted as follows:
Profit in USD = Price Change x Units Traded / Exit Price
or, specifically:
$33.09 = 0.35 x 10000 / 105.77
Obviously, all U.S. brokers perform this simple conversion
to U.S. Dollars before adding profits to your margin account.

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