Position Size and Profit/Loss

An investor would use the exchange rate of a currency pair to determine the size of the base currency. For example, to determine the quantity of Euros to trade for $100,000 dollar a trader would divide $100,000 by the exchange rate (1.37) which would equal nearly 73,000 euros. Other currencies would require the use of multiplication. For example, investors would need 970,000 yen to trade $100,000 dollars (97 * 100,000).

Calculating profit and loss requires a similar technique. An example of calculating profits would be as follows. Assume a trader uses $100,000 dollars to purchase the currency pair USD/JPY. If the trade was to buy dollars and sell yen at 97.00 and the currency pair after the trade is placed moved to 98.00 the trade would have 1 big figure of profit. The investor’s gains moved from 970,000 yen to 980,000 yen, giving the investors a profit of 10,000 yen. To convert that gain into dollars the investor would divide by the current exchange rate of 98 which reflects a profit of $102.