Calculating profit and calculating loss is a crucial step for traders that is essential for strategizing and managing risk effectively. Here’s a simplified explanation of the process:
Profit or loss from a trade is always calculated in the quote currency of the pair. For example, in EURUSD, where USD is the quote currency, all calculations are made in USD.
The Pip value, which measures the profit or loss for each pip movement in the market, is determined using the formula:
Pip value = Lots × Contract Size × Pip size
This value is always in the quote currency.
When Closing a Trade:
• For Buy orders, profit/loss is calculated using the closing Bid price.
• For Sell orders, profit/loss is calculated using the closing Ask price.
For example, when trading USDHKD with a USD account, HKD profit/loss is converted into USD using the Bid or Ask prices at the time of closure, depending on the trade type.
Conversion Rate:
• The conversion rate at closure ensures accurate profit or loss calculation in the account currency.
• If the account currency matches the base currency, the closing price is used directly.
• If the account currency differs from the quote currency, the platform uses the relevant conversion rate (Bid or Ask) at the time of trade closure based on trade direction:
- Bid for converting profit on Buy trades.
- Ask for converting profit on Sell trades.
Exceptions:
• For Indices and Stocks on MT5, the current Bid price is used for conversions.
• On MT5, the Bid price is applied to close Buy orders and the Ask price is applied to close Sell orders.
This process ensures clarity and accuracy when calculating profit and loss based on market movements and account currency settings. For further details, refer to the platform’s documentation or contact customer support for guidance.