When you calculate your profit from a trade, you should remember several factors. They include the type of asset you’re trading (stocks, Forex, commodities, etc.) and the specific details of the trade, such as the entry price, exit price, and any associated fees or commissions. Headway analysts explain how to calculate your profits correctly and easily make it your routine.
Before calculating the profits
Before you calculate your benefits, make sure that you keep accurate records of your trades, including entry and exit prices, fees, and other relevant details. This will help you track your trading performance, analyze your strategies, and fulfill any tax or regulatory requirements related to trading profits.
Depending on the platform you use for trading, the profit calculation may be automated. You can typically find the realized profit or loss directly in your trade history or account statement. However, understanding the calculation process can help you verify and cross-check the results.
First, you identify the asset you traded, the quantity or position size you bought or sold, the entry price (the price at which you entered the trade), and the exit price (the price at which you closed the trade).
Find the difference between the exit price and the entry price. If you bought an asset, subtract the entry price from the exit price. If you sold an asset, subtract the exit price from the entry price. Take into account any fees or commissions associated with the trade. These can include brokerage fees, spread costs (for forex trading), or transaction fees. Subtract these costs from the price difference.
Multiply the adjusted price difference by the quantity or position size of the asset you traded. This will give you the total profit or loss for the trade.
Here’s a formula to summarize the calculation:
Profit/Loss = (Exit Price – Entry Price – Transaction Costs) x Position Size
This calculation provides the gross profit or loss from the trade. It doesn’t account for other factors such as taxes, interest charges, or financing costs. If the asset is denominated in a different currency than your account currency, you may need to consider currency conversion rates as well.
Let’s say you traded the EURUSD currency pair. You bought 10,000 euros (EUR) at an entry price of 1.1500 USDEUR. Later, you sold all the euros at an exit price of 1.1800 USDEUR. The transaction also incurred a spread cost of 10 pips.
We collect the trade details:
- Currency pair: EUR/USD
- Quantity: 10,000 euros
- Entry price: 1.1500 USDEUR
- Exit price: 1.1800 USDEUR
- Spread cost: 10 pips
We calculate the price difference:
Exit price – Entry price = 1.1800 – 1.1500 = 0.0300 USDEUR
We consider spread costs:
Price difference – Spread cost = 0.0300 – (10/10,000) = 0.0300 – 0.0010 = 0.0290 USDEUR
If needed, we convert the result to account currency:
Profit/Loss = Price difference x Position size = 0.0290 x 10,000 = 290 USD
In this example, the calculated profit is 290 USD. It means that the trade resulted in a profit after accounting for the spread costs.
Use these formulas to forecast your trending results and make informed decisions. Start now on Headway!