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Forex Trading: Calculating Profit And Loss In Foreign Currency Trading
By Thomas Berten
The foreign exchange market, or Forex market, is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in pairs. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political events. Using a hypothetical Forex investment, this article shows you how to calculate profit and loss in Forex trading.
To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are expressed in pairs and usually in five-digit numbers. In the following example, your pair of currencies are the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The to the left of the "/" (USD in this example) is referred to as base and its value is always 1. The to the right of the "/" (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central of the Forex market, and it is always treated as the base in any Forex quote where it is one of the pairs.
Let's go now to our hypothetical Forex investment to show how you can profit or come up short in Forex trading. In this example, your pair of currencies are
Euro May Drop Below 100 Yen on Ichimoku Cloud Trends: Technical Analysis
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<a href="http://www.bloomberg.com/news/2010-09-09/euro-may-drop-below-100-yen-on-ichimoku-cloud-trends-technical-analysis.html" style="font-size:1.2em">Euro May Drop Below 100 Yen on Ichimoku Cloud Trends: Technical Analysis</a>
<br> <span style="color:#888888;">Bloomberg</span> - <span style="white-space:nowrap">1 hour ago </span>
<div style="width:80%;">By Yoshiaki Nohara - Thu Sep 09 21:59:04 GMT 2010 The euro may fall below 100 yen to a nine-year low, Ueda Harlow Ltd. said, citing trading patterns. A weekly ichimoku chart shows the common ...</div>
<a href="http://www.businessweek.com/news/2010-09-09/euro-may-drop-below-100-yen-on-ichimoku-technical-analysis.html">Euro May Drop Below 100 Yen on Ichimoku: Technical Analysis</a> - <span style="color:#888888">BusinessWeek</span><br>
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Dollar and precious metals at a glance
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<a href="http://www.businessweek.com/ap/financialnews/D9I4JI200.htm" style="font-size:1.2em">Dollar and precious metals at a glance</a>
<br> <span style="color:#888888;">BusinessWeek</span> - <span style="white-space:nowrap">3 hours ago </span>
<div style="width:80%;">Key currency exchange rates Wednesday, compared with late Tuesday in New York: Dollar vs: Exchange Rate Pvs Day Yen 83.90 83.98 Euro $1.2700 $1.2724 Pound $1.5430 $1.5480 Swiss franc 1.0156 1.0118 ...</div>
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Euro Steadies As US Jobs Picture Brightens
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<a href="http://www.rttnews.com/Content/ForexTopStory.aspx?Node=B3&Id=1413994" style="font-size:1.2em">Euro Steadies As US Jobs Picture Brightens</a>
<br> <span style="color:#888888;">RTT News</span> - <span style="white-space:nowrap">8 hours ago </span>
<div style="width:80%;">(RTTNews) - The euro was stable versus the dollar and yen on Thursday, as another mildly encouraging US jobless claims report raised hopes the world's largest economy can escape a double-dip ...</div>
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Dollar Mixed, Consolidates Vs. Euro
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<a href="http://www.thestreet.com/offers/omnisky/html/markets/currency/10855987.html" style="font-size:1.2em">Dollar Mixed, Consolidates Vs. Euro</a>
<br> <span style="color:#888888;">TheStreet.com</span> - <span style="white-space:nowrap">12 hours ago </span>
<div style="width:80%;">By BBH FX Strategy The US dollar was mixed Thursday as it consolidates against the euro and Swiss franc, remains heavy against the yen and is performing best against sterling, especially following ...</div>
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? Euro posts losses as worries over Irelands finances spread
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<a href="http://www.propertywire.com/news/currency-watch/euro-posts-losses-as-worries-over-irelands-finances-spread-201009094483.html" style="font-size:1.2em">? Euro posts losses as worries over Irelands finances spread</a>
<br> <span style="color:#888888;">Property Wire</span> - <span style="white-space:nowrap">14 hours ago </span>
<div style="width:80%;">Wednesday's gains in Wall Street came after a big rally last week in stocks as investors increasingly factor in indications that the threat of a double dip recession is waning. Risk appetite has ...</div>
<a href="http://www.onefinancialmarkets.com/news/2010/09/09/euro-rising-against-dollar-but-investors-looking-to-offload/">Euro rising against dollar, but investors looking to offload</a> - <span style="color:#888888">One Financial</span><br>
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Yen Retreats From Two-Week High Versus Euro on Growth Optimism
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<a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/09/08/bloomberg1376-L8GAY307SXKX01-3REETE111OLSKDJ5V688UVIK0M.DTL" style="font-size:1.2em">Yen Retreats From Two-Week High Versus Euro on Growth Optimism</a>
<br> <span style="color:#888888;">San Francisco Chronicle</span> - <span style="white-space:nowrap">22 hours ago </span>
<div style="width:80%;">Sept. 9 (Bloomberg) -- The yen retreated from near a two- week high against the euro as optimism that a recovery in the Asia-Pacific region is gathering momentum damped demand for the safety of ...</div>
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Stocks Rise as Euro Debt Worries Ease
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<a href="http://www.thestreet.com/offers/omnisky/html/markets/marketstory/10854916.html" style="font-size:1.2em">Stocks Rise as Euro Debt Worries Ease</a>
<br> <span style="color:#888888;">TheStreet.com</span> - <span style="white-space:nowrap">Sep 8, 2010 </span>
<div style="width:80%;">By Shanthi Venkataraman NEW YORK (TheStreet) -- Stocks opened higher on Wednesday tracking a recovery in European markets after a successful Portugal bond auction helped ease concerns about the ...</div>
<a href="http://www.howestreet.com/articles/index.php?article_id=14492">European Credit Stress Returns With Vengeance - Irish, Portuguese Bond Spread at All Time High - Yen Soars - Gold Hits All Time High</a> - <span style="color:#888888">HoweStreet.com</span><br>
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China Yuan Down Slightly Late On Euro Weakness Overnight
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<a href="http://online.wsj.com/article/BT-CO-20100908-703962.html" style="font-size:1.2em">China Yuan Down Slightly Late On Euro Weakness Overnight</a>
<br> <span style="color:#888888;">Wall Street Journal</span> - <span style="white-space:nowrap">Sep 8, 2010 </span>
<div style="width:80%;">SHANGHAI (Dow Jones)--China's yuan fell slightly against the US dollar late Wednesday afternoon following the euro's drop against the dollar overnight because of renewed concerns over the health ...</div>
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FOREX-Euro rattled by bank scare, yen eyes new highs
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<a href="http://www.reuters.com/article/idUSSGE68700320100908" style="font-size:1.2em">FOREX-Euro rattled by bank scare, yen eyes new highs</a>
<br> <span style="color:#888888;">Reuters</span> - <span style="white-space:nowrap">Sep 8, 2010 </span>
<div style="width:80%;">SYDNEY, Sept 8 (Reuters) - The euro was on the defensive on Wednesday as the latest scare over the euro zone banking system slapped it to lifetime lows against the Swiss franc and Australian ...</div>
<a href="http://www.balkans.com/open-news.php?uniquenumber=69850">Euro rattled by bank scare, yen eyes new highs -euro to record lows on Swiss franc</a> - <span style="color:#888888">Balkans.com Business News</span><br>
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WORLD FOREX:Euro Gains Modestly Vs Dollar On Bond Sale,US Data
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<a href="http://online.wsj.com/article/BT-CO-20100909-707760.html" style="font-size:1.2em">WORLD FOREX:Euro Gains Modestly Vs Dollar On Bond Sale,US Data</a>
<br> <span style="color:#888888;">Wall Street Journal</span> - <span style="white-space:nowrap">Sep 7, 2010 </span>
<div style="width:80%;">By Bradley Davis Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)-- The euro gained modestly on the dollar Thursday after better-than-expected US data allayed some worry over the pace of the economic ...</div>
<a href="http://imarketnews.com/node/18848">TheFXSpot: EZ Peripheral Woes Reemerge; Euro Slips,Stocks Off</a> - <span style="color:#888888">IMarketnews.com</span><br>
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the U.S. Dollar and the Euro. The Forex rate of EUR/USD on August 26, 2003 was 1.0857, which means that one U.S. Dollar was equal to 1.0857 Euros, and was the weaker of the two currencies. If you had bought 1,000 Euros on that date, you would have paid $1,085.70.
One year later, the Forex rate of EUR/USD was 1.2083, which means that the value of the Euro increased in relation to the USD. If you had sold the 1,000 Euros one year later, you would have received $1,208.30, which is $122.60 more than what you had started with one year earlier.
Conversely, if the Forex rate one year later had been EUR/USD = 1.0576, the value of the Euro would have weakened in relation to the U.S. Dollar. If you had sold the 1,000 Euros at this Forex rate, you would have received $1,057.60, which is $28.10 less than what you had started out with one year earlier.
As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you. Gregory DeVictor is a consultant and has been developing and marketing web sites since 1999. You can learn more about Forex trading at: www.Forex-Trading-System.name
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Forex - British Pound Vulnerable As Risk Appetite Wanes on European Banking Concerns
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<a href="http://www.forextv.com/forex-news-story/forex-british-pound-vulnerable-as-risk-appetite-wanes-on-european-banking-concerns" style="font-size:1.2em">Forex - British Pound Vulnerable As Risk Appetite Wanes on European Banking Concerns</a>
<br> <span style="color:#888888;">ForexTV.com</span> - <span style="white-space:nowrap">3 hours ago </span>
<div style="width:80%;">The GBP/USD recovered a majority of its earlier losses after a better than expected US initial jobless claims report added to prevailing optimism. Double dip recession concerns for the world's ...</div>
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Exchange Rates
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<a href="http://www.onenewspage.com/news/Business/20100909/14878149/Exchange-Rates.htm" style="font-size:1.2em">Exchange Rates</a>
<br> <span style="color:#888888;">One News Page</span> - <span style="white-space:nowrap">3 hours ago </span>
<div style="width:80%;">ForexFlashNews Exchange rates: British Pound nipped by trade data: Foreign exchange markets guided by concerns over the strength ... http://bit.ly/cDC4ls 2 hours ago ForexFlashNews Exchange rates ...</div>
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British Pound Still Bearish
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<a href="http://www.dailyfx.com/forex/technical/elliott_wave/gbp-usd/2010/09/09/eliottWaves_gbp-usd.html" style="font-size:1.2em">British Pound Still Bearish</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">The GBPUSD has found support and has exceeded trendline resistance. What's more, the rally from the low is an impulse (5 waves). The risk is that the rally could have completed an expanded flat ...</div>
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Exchange rates: British Pound decline resumes
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<a href="http://www.economy-news.co.uk/pound-exchange-rates-09201009.html" style="font-size:1.2em">Exchange rates: British Pound decline resumes</a>
<br> <span style="color:#888888;">Economy News</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">"The Pound fell 0.8% against the Euro this morning, while the UK currency also lost ground versus the majority of the 16 most actively traded currencies, after the Bank of England kept interest ...</div>
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British Pound Bias Calls for Weakness
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<a href="http://www.dailyfx.com/forex/technical/ssi/gbp-usd/2010/09/09/ssi_gbp-usd.html" style="font-size:1.2em">British Pound Bias Calls for Weakness</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">GBPUSD ?The ratio of long to short positions in the GBPUSD stands at 1.22 as nearly 55% of traders are long. Yesterday, the ratio was at 1.03 as 51% of open positions were long. In detail, long ...</div>
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Forex Sentiment Shift Points to EURUSD, GBPUSD Losses
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<a href="http://www.dailyfx.com/forex/technical/ssi/table/2010/09/09/ssi_table_story.html" style="font-size:1.2em">Forex Sentiment Shift Points to EURUSD, GBPUSD Losses</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">9 hours ago </span>
<div style="width:80%;">Choppy US Dollar price action has made for similarly indecisive moves in forex crowd sentiment, but the most recent move towards USD shorts against the British Pound and Euro leaves us modestly ...</div>
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Option Traders Betting on Agriculture and the British Pound
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<a href="http://www.bloggingstocks.com/2010/09/09/option-traders-betting-on-agriculture-and-the-british-pound/" style="font-size:1.2em">Option Traders Betting on Agriculture and the British Pound</a>
<br> <span style="color:#888888;">BloggingStocks</span> - <span style="white-space:nowrap">10 hours ago </span>
<div style="width:80%;">Option traders appear to be setting up for a bullish move on Market Vectors Agribusiness ETF (MOO). Traders plowed into 2,601 new call option contracts -- 20.81 times the average volume -- on the ...</div>
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British Pound Holds Range as BoE Maintains Current Policy
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<a href="http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2010/09/09/09-09-10.html" style="font-size:1.2em">British Pound Holds Range as BoE Maintains Current Policy</a>
<br> <span style="color:#888888;">Daily FX</span> - <span style="white-space:nowrap">11 hours ago </span>
<div style="width:80%;">The British Pound showed little reaction to the Bank of England interest rate decision as the MPC held the benchmark interest rate at 0.50% and maintained its asset purchase target at GBP 200B ...</div>
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Exchange rates: British Pound nipped by trade data
<div style="padding:0px; margin-bottom:1.5em;">
<a href="http://www.economy-news.co.uk/exchange-rates-09201009.html" style="font-size:1.2em">Exchange rates: British Pound nipped by trade data</a>
<br> <span style="color:#888888;">Economy News</span> - <span style="white-space:nowrap">14 hours ago </span>
<div style="width:80%;">Foreign exchange markets guided by concerns over the strength of the Eurozone, meanwhile the British Pound reacts to the latest UK trade data. The Pound Dollar exchange rate is 0.446% lower on the ...</div>
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Great British Pound vs. Japanese Yen (2010-09-09)
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<a href="http://www.ibtimes.com/articles/60819/20100909/great-british-pound-vs-japanese-yen-2010-09-09.htm" style="font-size:1.2em">Great British Pound vs. Japanese Yen (2010-09-09)</a>
<br> <span style="color:#888888;">International Business Times</span> - <span style="white-space:nowrap">16 hours ago </span>
<div style="width:80%;">We will make it very simple today as we witnessed a sharp incline yesterday affected by the bullish harmonic AB=CD pattern of the four hour interval that was discussed in details in yesterday's ...</div>
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Foreign Currency Exchange
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