Profit and loss in forex trading depend on the price movement of the currency pair you are trading:
• Profit: If the price moves in your predicted direction (e.g., the base currency appreciates), you earn a profit in forex trading.
Example:
If you buy 1 standard lot (100,000 units) of EURUSD at 1.1000 and sell it at 1.1050, the price has moved 50 pips in your favor.
Profit = 50 pips × $10 (per pips value for 1 standard lot)
= $500.
• Loss: If the price moves against your prediction (e.g., the base currency depreciates), you incur a loss in forex trading.
Example:
If you bought 1 standard lot of EURUSD at 1.1000 and the price moves to 1.0950, the price has moved 50 pips against you.
Loss = 50 pips × $10 (per pips for 1 standard lot)
= $500.
The extent of profit or loss is determined by two main factors:
Position size (lot size): The size of the trade determines how much each pip movement is worth.
- Standard Lot (100,000 units) = $10 per pip
- Mini Lot (10,000 units) = $1 per pip
- Micro Lot (1,000 units) = $0.10 per pip
Number of pips the price moves: The larger the movement in the currency pair, the higher the profit or loss. A pip is the smallest price movement in a currency pair.
The extent of profit or loss is determined by the position size (lot size) and the number of pips the price moves.