Generally, traders profit from trading forex by exchanging one currency for another in anticipation of a change in price. To be more specific, profit is earned when the trader speculated correctly that the money he had bought increased in value compared to the currency he had sold.
Let us take a concrete example to give a clearer picture of how a trader earns from trading forex.
For instance, upon checking the market situation and recent developments, you speculate that the British pound will go higher against the U.S. dollar. Then, you decided to buy the British pound at a 2% margin and waited for the exchange rate to go up. When you buy one lot of pounds at 1.40000, it means that you are buying 100,000 pounds (one lot = 100,000 units) which are amounting to $140,000.
Let us assume that your speculation comes true and sell the pound, closing the position at 1.40400. You earn about $400 in this deal.
Once you close a position, the deposit that you made is returned to you, and a calculation of your profit is done. Your forex trade profit will then be credited to your account.
Be of good understanding, though, that Forex traders lose the same way when they make the wrong decision to buy at a high price and sell at a low price.
This only goes to show the vastness of risk in trading. The high volatility of the market prices is the perennial enemy of traders from trading profitably.
Forex profit calculator
Forex profit calculation is part of traders’ routine whenever they trade. Calculating trading profit is creating a mental map to see where your trade bet is going, and eventually, make more sound decisions after figuring things out. It is also a way to put the potential loss in perspective.
Put, you use the profit calculator to help you have hindsight about the trade outcome then from then on, decide if it is favorable for you.
Sometimes, a profit calculator is also used as a strategic trading tool to compare bid and ask prices to choose the best trading option for you.
Your forex broker provides you the profit calculator to ease your trading uncertainties. Generally, these are the steps to use the profit calculator:
- Pick your peg currency pair to trade
- Decide to buy or sell
- Set the open and close price
- Indicate the number of your trade lot
- Select your preferred currency for the results
However, different forex platforms entail different forex profit calculators. But the general notion in using the forex profit calculator is that the results of the calculation only serve for educational purposes or a good estimation and projection of potential income and do not equate to the actual profit the trader gains from a day of trading.
Calculate your success in trading and profit from your diligence in taking time to strategize coming into the forex market trade war. After all, the pathway to growth is the best way to go.