What is a Forex Profit Calculator?
A forex profit calculator is a useful tool used by forex traders to calculate the possible profit or loss they would make on a trade. Usually, when traders place a trade in the market they don’t know whether the trade will turn out in their favour or go against them. However, by making use of a forex calculator profit and loss can be easily determined. This is an excellent way to confidently enter the market as a trader gets the opportunity to prepare himself for good as well as for the worst.
The best part about using a forex profit calculator is that it is extremely easy to use. Even if you are a complete beginner you can quickly calculate the potential profit and loss for a certain position. You only need to know two things: your position size and the pip value. Typically, every forex trader takes a position very strategically. They calculate the expected number of pips the price will move in upward as well as downward position and accordingly place take-profits and stop loss levels. As such, they can use a profit calculator and enter the following details:
- The currency pair they want to trade
- Deposit currency of their account
- Opening price of the trade
- Closing price of the trade
- Trade size
- The direction of the trade, that is, long or short
After taking the difference between the entry and exit price of the trade and then multiplying it with the pip value, the forex profit calculator will show you the outcome of the trade in no time. This information can be pretty helpful in deciding whether to take up a trade or let it go.
There are several advantages of using a forex profit calculator:
- First and foremost, the use of a forex profit calculator enables traders to take action more quickly. This is especially necessary for day traders as they need to skillfully enter and exit positions within a short time frame. We all know how important it is to have a combination of skill, risk management and appropriate position sizing, along with a lack of emotional bias during decision-making. What’s better than using a forex profit calculator to aid you in managing the risk effectively? You can adjust your position size according to your risk tolerance and trading strategy, leading to better decision-making and ultimately, greater success in the forex market.
- Traders can only set themselves up for long-term trading success if they are able to set the proper risk/reward ratio. Thankfully, the forex calculator has made the task easier. It can be used by traders to figure out take-profit or stop-loss levels. By using a forex calculator, traders can also determine the pip value of a trade, which is crucial in determining the position size to take based on their risk tolerance and account balance. This helps them avoid over-leveraging and potential losses that could wipe out their trading account.
- Online profit calculators are typically not demanding. They don’t have high system requirements and work wonderfully even on outdated and inferior technology. Additionally, these apps provide a user-friendly interface and intuitive design, making it easy for beginners to navigate and execute trades. This can help to increase their confidence and encourage them to continue trading.
- You don’t have to download any app or software on your system in order to use a forex profit calculator. Rather, you can simply visit any reputable website to use the calculator. These days many forex brokers have also started to offer different trading calculators on their platforms which means traders don’t need to exit their trading app or website to use a forex calculator.
- Using a forex profit calculator doesn’t cost you a penny. It’s totally free of cost and has a high accuracy rate. So go ahead and calculate the prospective profits and losses of your trades to get a better perspective.
- You can use forex profit and pip calculator together where the former will help you calculate the potential profit of a trade, while the latter will calculate the exact value of each pip to give you an accurate calculation of the profits.
Fortunately, there are no drawbacks to using a forex profit calculator. Results shown by trading calculators are almost always correct. The only time it can show weird outcomes is when there’s some error in the details you have entered so make sure to check them twice before you click on “Calculate”. Also, it’s important that you only use websites that are trusted by a wide range of traders.
The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and how many pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement. It is important to note that the P&L can be positive or negative depending on whether the price has moved in favour or against the position. This is why traders often use stop-loss orders to limit potential losses in case the price moves against their position.
Let’s say you are trading a standard lot of GBP/USD currency pair which is currently trading at 1.5630. Prices have increased by 10 pip if they go from GBP/USD 1.5630 to 1.5640. The 10 pip movement on a 100,000 GBP/USD position is equivalent to USD $100. (100,000 x 10). We must know whether we were long or short for each trade in order to determine whether we made a profit or a loss.
Long position: In the case of a long position, if the prices move up, it will be a profit, and if the prices move down it will be a loss. In the example cited above, if the position is long GBP/USD, then it would be a USD 100 profit. Alternatively, if the prices had moved down from GBP/USD 1.5630 to 1.5620, then it would be a USD 100 loss.
Short Position: In the case of a short position, if the prices move up, it will be a loss, and if the prices move down it will be a profit. In the same example, if we had a short GBP/USD position and the prices moved up by 10 pips, it would be a loss of USD 100. If the prices moved down by 10 pips, it would be a USD 100 profit.
The forex profit calculator is a great tool to include in your regular forex trading routine because it helps you understand the potential profit or loss of the trade. By using the forex profit calculator, you can easily calculate the potential profit or loss of a trade before entering it, which helps you make informed trading decisions. This tool can also help you manage your risk and optimise your trading strategy.