Trading the foreign exchange (forex) markets can be difficult at the best of times. Researching trades and exchange rates, planning the best execution, deciding on stop-loss and take-profit positioning and calculating the amount of risk you should take can be a daunting task, especially if you are new to the markets.
Online tools like a forex profit calculator help traders trim the amount of time needed to plan and implement profit-making trades. Forex profit calculators are widely used and essential for FX traders.
What is a Forex Profit Calculator?
A forex profit calculator is a tool developed to help forex traders calculate their potential profits and losses depending on the outcome of the trade. The forex profit calculator is used by most FX traders to help them trade the foreign exchange markets.
A forex profit calculator takes the difference between a trader’s buy and sell price and multiplies it based on the price interest point (pip) value of the trade. In addition to the opening and closing price of the trade, a forex profit calculator takes into account the currency pair traded, the lot size and the trader’s account base currency.
When using a forex calculator, it will usually ask you to input details such as the currency pair you are trading, the account currency, your trade size, the trade’s opening and closing price and whether you went long or short. From those inputs, it tells you the potential profit or loss for that trade.
Why Should Forex Traders Use a Profit Calculator?
Forex traders should use a forex calculator to take advantage of several benefits.
It allows the trader to make faster decisions, which are essential for adroitly getting in and out of a trade position in intraday forex trading. Success as a forex trader depends on a combination of skill, risk mitigation, appropriate position sizing and a lack of emotional decision-making.
Tools like a forex calculator help traders calculate and set the appropriate risk/reward ratio, which is important for risk management and long-term trading success. Traders can use it to calculate take-profit or stop-loss levels.
Another tool, the forex swap calculator, shows traders the amount of rollover they will receive or pay on a daily basis depending on the interest rate differentials between the two currencies traded.
This type of calculator is useful for carry traders, allowing them to estimate potential earnings and preplan the trades they want to take. Forex traders can use this trading calculator to help reduce fees and understand the pairs that have the highest interest expenses. A trader may decide to hold a particular position for only a day instead of two or more days based on the fact that the carry charges, as shown by the swap calculator, are high compared to other pairs.
How is Profit Calculated in Forex Trading?
The method of calculating profit and loss (P&L) from forex trading is simple. All you need is the position size and the number of pips the pair has moved to calculate the P&L of a position. The position size multiplied by the pip movement equals the profit or loss made.
How to Use the Forex Profit Calculator
Using the forex profit calculator is straightforward. You input these details about your trade.
- Currency pair traded
- Trading account currency
- Trade size (in lots)
- Opening and closing prices of the trade
- Direction traded — either buy or sell
The forex profit calculator takes into account the difference between the entry and exit prices and multiplies it based on the pip value of your trade. The pip value calculation assesses the currency pair, the lot size and the base currency. Once those details have been added to the calculator, you see the profit or loss of the trade.
Try Out Benzinga's Profit Calculator
Now that you understand its benefits and how to use a forex profit calculator, you can start planning your potential FX trades using Benzinga’s forex profit calculator.
An Essential FX Tool
Understanding the potential profit or loss of the trade makes you a better trader, and that’s why the forex profit calculator is a great tool to incorporate into your everyday forex trading routine.
It can be applied while assessing whether to open a position or when examining the costs and potential earnings of a trade you are in. Using a trading calculator lets you obtain crucial information faster than it takes to figure it out on your own using a normal calculator or an Excel spreadsheet.
Frequently Asked Questions
How much is 100 pips worth?
When it comes to the U.S. dollar’s pip value, 100 pips is worth 1 cent.
Do you pay tax on forex profits?
Yes, spot forex traders have to pay taxes and are able to choose between Section 1256 or Section 988. Meanwhile, forex futures and options traders pay taxes according to IRC Section 1256.
How many units is one lot in forex?
A standard lot size is 100,000 units. Mini-lots represent 10,000 units, and micro-lots represent 1,000 units.
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About Sam Boughedda, Stock Market Analyst
He is an expert in the following spaces: stock market news writing, analysis, and research.