Understanding how profits or losses are calculated can help you become a more successful trader. In general, the profit or loss on a trade is always determined in the quote currency.
Pips value
The value of a pip reflects how much profit or loss the client will receive when the price changes by one pip (the fourth decimal place for most Forex instruments). The pips value is calculated in the quote currency.
The formula for calculating the value of pips:
Profit is always calculated in the quote currency and converted to the account currency at the closing price of the order. Ago:
For buy orders, the Bid price at the time of closing is used.
For sell orders, the Ask price at the time of closing is used.
Conversion rate
The conversion rate allows you to accurately calculate the profit or loss at the time of closing. Below are two examples of profit calculation taking into account the conversion rate.
If the account currency matches the base currency, the closing price is used to convert the calculated profit/loss to the account currency.
Conversion rate = order closing price (for buy orders: Bid price at closing time, for sell orders: Ask price at closing time).
For example:
In the GBPUSD pair, the currency of the account is the pound sterling.
Closing prices for GBPUSD are 1.29123 / 1.29135.
The profit is 50 USD.
Then the profit in the currency of the account, taking into account the conversion factor, is equal to:
50 / 1.29123 = £38.72
Profit in account currency = 38.72 GBP
If the account currency does not match the base currency or the quote currency, the system uses the price of the currency pair, which includes the quote currency of your trade and your account currency, for the conversion.
The Bid price is used for buy orders, and the Ask price is used for sell orders.
For example:
Let's say you are trading EURUSD and your account currency is CAD. Profit/loss calculated in US dollars must be converted to Canadian dollars at the Ask prices for USDCAD at the time of closing. The choice of price depends on the type of order.
USDCAD closing price: 1.25443/1.25468
Profit from selling EURUSD: $50
Thus, the profit in the currency of the account, taking into account the conversion factor, is equal to:
50 × 1.25468 (Ask price) = CAD 62.74
Profit in account currency = 62.74 CAD
We wish you successful trading with Artcap !
