Once again we’ll take the generic pair B/Q. B is the base currency and Q is the quote currency. We’re going to buy and then sell a lot of 10,000 units of base currency B.
Step | Transaction | Current rate | Explanation | Base currency B | Quote currency Q |
1 | We buy 10000 B | 1.3000 | When we buy the base currency we sell the quote currency at the current rate. A plus sign (+) before the lot size indicates a buy; a minus sign (-) indicates a sale. | +10000 | -13000 |
2 | We sell 10000 B | 1.3100 | Price rises by 100 points and we close the position. | -10000 | +13100 |
3 | We calculate the profit/loss in Q | We are left with 0 units of B and 100 units of Q. | 0 | +100 | |
4 | Q is USD | If Q is USD we have made 100 USD. USD is the quote currency in EUR/USD, GBP/USD, AUD/USD. | +100USD | ||
5 | Q is not USD | If Q is not USD, then we need to convert the profit from Q into USD. Let’s say we are working with USD/CHF. We need to divide the profit of 100 Swiss francs by the USD/CHF sell rate, i.e. by 1.3100. This gives us 76.91 USD. When the quote currency is not the dollar the value of a point for the pair is variable. |
+76.91 USD |
Pc=closing price;
Po=opening price;
Pd=sale price of the quote currency against USD in cross-rate pairs.
For pairs where USD is the quote currency (GBP/USD; EUR/USD; AUD/USD):
Profit/Loss = ± (Рс-Ро) × lot
For pairs where USD is the base currency (USD/JPY, USD/CHF, USD/CAD):
Profit/Loss = ± ((Рс-Ро)/Рс) × lot
For cross-rates (no USD in pair):
Profit/Loss = ± ((Рс-Ро)/Pd) × lot
Notes:
- With cross-rates you need to convert the value of our points from the quote currency into USD.
- With a long position these formulae show profit as a positive number of points and with a short position, profit is a negative number of points.
- You can use these formulae to work out the value of a point. To do this Pc-Po = 1 point.
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