Monday, November 2, 2009

4.3.6 Forex Calculus : Calculating Profit and Loss - Scenario 5

Non-USD Cross Rates (USD/Quote) 
Most experienced traders can mentally perform the arithmetic
 in these examples. It just takes practice. However, we
must now tackle cross rates, currency pairs where neither
 currency is the U.S.Dollar. Obviously the profit in pips 
will be initially expressed in terms of the quote (second) 
currency of the cross rate pair. The solution is simple:
Look up the current price of the currency pair containing
 USD and the quote currency of the cross rate pair.
Let's suppose we bought 10000 units of CHF/JFY.
Entry price is 85.46. Exit price 86.86. So, the price
change is 0.40.

The Conversion Rate of 105.32 is actually the cur-
rent price of the USD/JPY pair.
The adjusted profit formula  for this cross rate trade is:
Profit in USD = Price Change x Units Traded / Conversion Rate
$37.98 = 0.40 x 10000 / 105.32

No comments:

Post a Comment