Useful Forex trading calculations to help you understand formulae and common terms used for Forex currency pairs.

Lesson 10: Forex Trading Calculations hide

Margin Calculation

Margin Calculation For Forex Currency Pairs

What Is a Lot in Forex Currency Pairs?

A “lot” in Forex currency pairs refers to the position size or trading volume. Lot is the term used for 100,000 units of the base currency. For example, we open a 1 Lot Buy or a Sell position in EUR/USD currency pair at 1.1250. What we are doing is Buying/Selling 100,000 EUR in exchange of 112,500 USD.

How to Calculate Position Margin in Forex Currency Pairs?

Position margin calculation in Forex currency pairs, using lot and leverage:

  • Position Margin
    • Margin = (Position Size) / (Leverage)
      • 1 Lot EUR/USD example:
        • Margin = (100,000 EUR) / (400) = 250 EUR
  • Account Margin: calculated if the account currency is different than the base currency.
    • Margin = (Position Margin) x (Current exchange rate)
      • 1 Lot EUR/USD at 1.1250 example:
        • Margin = (250 EUR) x (1.1250) = 281.25 USD

Margin Calculation For Non-Forex Asset CFDs

What Is a Lot in Non-Forex Asset CFDs?

Non-Forex assets include commodities, stocks, indices, cryptocurrencies, ETFs, and bonds. A “lot” in the CFDs of non-Forex assets refer to the regular contract size or the contract size. The contract size is usually found on the trading platform under asset specifications.

How to Calculate Position Margin in Non-Forex Asset CFDs?

Position margin calculation in non-Forex asset CFDs, using contract size and leverage:

  • Position Margin
    • Position Margin = [(Contract Size) x (Asset Price)] / (Leverage)
      • 1 Lot Gold (XAU/USD) at 1,500 USD example:
        • 1 Lot Gold = 100 ounces
        • Margin = [(100 ounces) x (1,500 EUR)] / (50) = 3,000 USD
  • Account Margin: calculated if the account currency is different than the quote currency.
    • Account Margin = (Position Margin) x (Current exchange rate)
      • 1 Lot DAX 30 (DAX/EUR) at 9,000 EUR example:
        • 1 Lot DAX 30 = 10 index contracts Position Margin = [(10 contracts) x (9,000 EUR)] / (10) = 9,000 EUR
        • Account Margin = (9,000 EUR) x (1.1250) = 10,125 USD

Pip Value Calculation

Pip Value Calculation For Forex Currency Pairs

What is a Pip Value in Forex Currency Pairs?

In the currency pairs with 4 decimals, the pip is the 4th decimal in the price.

  • For example, if EUR/USD rate is 1.1362, pip is 2 at the end.

In the currency pairs with 2 decimals, the pip is the 2nd decimal in the price.

  • For example, if USD/JPY rate is 110.37, the pip is 7 at the end.

“Pip value” refers to a position’s profit or loss each time the asset price moves by one pip. This value is based on the position size.

How to Calculate Pip Value in Forex Currency Pairs?

Pip value calculation in Forex Currency pairs, using position size:

  • Position Pip Value in 4-Decimal Currency Pair
    • Position Pip Value = (Position Size) / 10,000
      • 0.5 Lot EUR/USD at 1.1362 example:
      • 0.5 Lot = 50,000 EUR
      • Pip Value = (50,000) / 10,000 = 5 USD
  • Position Pip Value in 2-decimal Currency Pairs
    • Position Pip Value = (Position Size) / 100
      • 0.7 Lot USD/JPY at 110.37 example:
        • 0.7 Lot = 70,000 USD
        • Pip Value = (70,000) / 100 = 700 JPY
  •  Account Pip Value: Pip values are calculated in terms of the quote currency in the pair. If you have a USD account and trading EUR/USD, the pip value is fixed by the position size. However, if you are trading USD/CAD, the pip value will be initially calculated in CAD. Then, it will be converted to USD with current USD/CAD exchange rate.
    • Account Pip Value = (Position Pip Value) x (Current exchange rate)
      • 1 Lot USD/CAD at 1.2500 example:
        • Position Pip Value = (100,000) / 10,000 = 10 CAD
        • Account Pip Value = (10 CAD) / [1.2500] = 8 USD

Pip Value Calculation For Non-Forex Asset CFDs

What Is a Pip Value in Non-Forex Asset CFDs?

The terms pip and pip value are usually used for Forex currency pairs. We can apply them to non-Forex asset CFDs to conceptualise the profit/loss per price move. A pip in non-Forex asset CFDs is the first unit in the price before decimals (if there are any). The pip value reflects the P/L, depending on the contract size, when the price moves by one pip.

How to Calculate Pip Value in Non-Forex Asset CFDs?

Pip value calculation in non-Forex asset CFDs, using contract size:

  • Position Pip Value
    • Pip Value = (Contract Size) x (1 Currency Unit)
      • 1 Lot Gold (XAU/USD) at 1,600 USD example:
        • 1 Lot = 100 ounces
        • Pip Value = (100) x (1 USD) = 100 USD per pip movement
  • Account Pip Value
    • Account pip value for non-Forex asset CFDs is calculated if the asset is traded against a different currency than the account currency. For example, if we have a USD account and trading DAX 30 (DAX/EUR) the pip value should be converted to USD from the current EUR/USD exchange rate.
    • Account Pip Value = (Position Pip Value) x (Exchange Rate)
    • 0.2 Lot DAX 30 (DAX/EUR) at 9,500 EUR example:
      • 0.2 Lot = 2 contracts
      • Position Pip Value = (2 contracts) x (1 EUR) = 2 EUR per pip movement
      • Account Pip Value = (2 EUR) x (1.1250) = 2.25 USD per pip movement

Spread Calculation

Spread Calculation For Forex Currency Pairs

What Is Spread in Forex Currency Pairs?

Spread is the difference between Bid (Sell) and Ask (Buy) prices of an asset. It’s the commission charged by the FX and CFD brokers and can be either fixed or floating. Brokers have a Trading Conditions page on the website where spread for each asset is written. Spread is applied automatically and appears as an initial floating loss in a newly opened position. It is calculated in terms of pips, and the actual cost is calculated using the pip value.

How to Calculate Spread in Forex Currency Pairs?

Spread calculation in Forex currency pairs, using Bid-Ask prices and pip value:

  • Position Spread
    • Position Spread = [(Ask Price) – (Bid Price)] x (Pip Value)
    • 0.3 Lot AUD/USD with 0.7140 Bid and 0.7145 Ask prices
      • 0.3 Lot = 30,000 AUD
      • Pip Value = 30,000 / 10,000 = 3 USD
    •  Spread = [(0.7145) – (0.7140)] = 5 pips
      • Spread cost = (5 pips) x (3 USD) = 15 USD
  • Account Spread: calculated when the quote currency and the account currency are different
    • Account Spread = (Position Spread) x (Exchange Rate)
      • 2 Lot EUR/GBP with 0.8973 Bid and 0.8979 Ask prices
        • 2 Lot = 200,000 EUR
        • Pip Value = 200,000 / 10,000 = 20 GBP
      •  Spread = (0.8979) – (0.8973) = 6 pips
        • Spread cost = (6 pips) x (20 GBP) = 120 GBP
      •  Account Spread
        • GBP/USD rate = 1.2235
        • Account spread cost = (120 GBP) x (1.2235) = 146.82 USD

Spread Calculation For Non-Forex Asset CFDs

What is Spread in Non-Forex Asset CFDs?

Spread in non-Forex asset CFDs is calculated in the same way. It is the difference between Bid (Sell) and Ask (Buy) prices of an asset. Depending on the asset and the broker, spread can be fixed or floating. In non-Forex asset CFDs, spread is the nominal Bid and Ask difference. It is counted for every unit in the position size.

How to calculate Spread in Non-Forex Asset CFDs?

Spread calculation in non-Forex asset CFDs, using Bid-Ask prices and pip value:

  • Position Spread
    • Position Spread = [(Ask Price) – (Bid Price)] x (Pip Value)
      • 0.1 Lot Gold (XAU/USD) with 1616.50 Bid and 1623.50 Ask prices
        • 0.1 Lot = 10 ounces
        • Pip Value = (10 ounces) x (1 USD) = 10 USD per pip
      •  Spread = [(1623.50) – (1616.50)] = 7 USD per ounce
        • Spread cost = (7 USD per ounce) x (10 ounces) = 70 USD
  • Account Spread: calculated when the quote currency and the account currency are different
    • Account Spread = (Position Spread) x (Exchange Rate)
      • 0.4 Lot DAX 30 (DAX/EUR) at 9,362 Bid and 9,366 Ask prices example:
        • 0.4 Lot = 4 contracts
        • Position Pip Value = (4 contracts) x (1 EUR) = 4 EUR per pip movement
      •  Spread = [(9,366) – (9,362)] = 4 EUR per contract
        • Spread cost = (4 EUR per contract) x (4 contracts) = 16 EUR
        • Account spread cost = (16 EUR) x (1.1250) = 18 USD

Profit/Loss Calculation

Profit/Loss Calculation For Forex Currency Pairs

What is Profit/Loss Calculation in Forex Currency Pairs?

Profit/Loss calculation in Forex currency pairs is the estimation of potential return and risk. The calculation is based on the pip value and the price targets for stop loss and take profit. The estimation can be further improved by deducting the spread.

How to calculate Profit/Loss in Forex Currency Pairs?

Profit/Loss calculation in Forex currency pairs, using pip value, take profit and stop loss:

  • Position Profit/Loss
    • Position Profit = [(Take Profit Price) – (Entry Price)] x (Pip Value)
    • Position Loss = [(Stop Loss Price) – (Entry Price)] x (Pip Value)
      • 1 Lot EUR/USD Buy position at 1.1320 entry price, 1.1350 TP and 1.1300 SL
        • 1 Lot = 100,000 EUR
        • Pip Value = [100,000] / 10,000 = 10 USD per pip
      • Profit = [(1.1350) – (1.1320)] x 10 USD = (30 pips) x (10 USD) = 300 USD
      • Loss = [(1.1300) – (1.1320)] x 10 USD = (-20 pips) x (10 USD) = -200 USD
  • Including Spread: When we open a Buy position, we open from the Ask price and close from the Bid price. So, TP and SL are based on the Bid price at the closure. If EUR/USD has 3 pips spread:
    • Position Net Profit = [(Take Profit Price) – (Entry Price) – (Spread)] x (Pip Value)
    • Position Net Loss = [(Stop Loss Price) – (Entry Price) – (Spread)] x (Pip Value)
      • Profit = [(1.1350) – (1.1320) – (3 pips)] x (Pip Value)
        • = (27 pips) x (10 USD) = 270 USD
      • Loss = [(1.1300) – (1.1320) – (3 pips)] x (Pip Value)
        • = (23 pips) x (10 USD) = 230 USD
  • Account Profit/Loss: Calculated when the quote currency and the account currency are different. If our account currency is EUR, we need to convert our USD-based calculations into EUR.
    • Account Profit = (Position Profit) x (Exchange Rate)
      • = (270 USD) / (1.1250) = 240 EUR
    • Account Loss = (Position Loss) x (Exchange Rate) = (230 USD) / (1.1250) = 204.44 EUR

Profit/Loss Calculation For Non-Forex Asset CFDs

What is Profit/Loss Calculation in Non-Forex Asset CFDs?

Profit/Loss calculation for non-Forex asset CFDs is the same with Forex currency pairs. However, they are essentially based on the value change of each asset in the position. For example, if we are trading Gold, the change in the price of the precious metal will be reflected for each ounce of Gold which our position includes.

How to calculate Profit/Loss in Non-Forex Asset CFDs?

Profit/Loss calculation in non-Forex asset CFDs, using pip value, take profit and stop loss:

  • Position Profit/Loss
    • Position Profit = [(Take Profit Price) – (Entry Price)] x (Pip Value)
    • Position Loss = [(Stop Loss Price) – (Entry Price)] x (Pip Value)
      • 1 Lot Gold (XAU/USD) Buy position at 1,650 USD entry price, 1,668 TP and 1,640 SL
        • 1 Lot = 100 ounces
        • Pip Value = (100 ounces) x ($1 per pip movement) = 100 USD
      • Profit = [(1,668) – (1,650)] x 100 USD = 1800 USD
      • Loss = [(1,640) – (1,650)] x 100 USD = 1000 USD
  • Including Spread: Similar to Forex currency pairs, spread in the non-Forex asset CFDs is the difference between Bid and Ask prices. In assets, spreads can be including cents, as well. If Gold has $2.50 spread:
    • Position Net Profit = [(Take Profit Price) – (Entry Price) – (Spread)] x (Pip Value)
    • Position Net Loss = [(Stop Loss Price) – (Entry Price) – (Spread)] x (Pip Value)
      • Profit = [(1,668) – (1,650) – (2.50)] x (Pip Value)
        • = ($15.50 profit margin) x (100 USD) = 1550 USD
      •  Loss = [(1,640) – (1,650) – (2.50)] x (Pip Value)
        • = ($12.50 loss margin) x (100 USD) = 1250 USD
  • Account Profit/Loss: When our account currency is different than the quote currency of the instrument, we are required to convert the price to the account currency by using their exchange rate. Let’s say our account is in Canadian Dollars and USD/CAD exchange rate is 1.3225:
    • Account Profit = [Position Profit] x [Exchange Rate]
      • = (1550 USD) x (1.3325) = 2065.38 CAD
    • Account Loss = (Position Loss) x (Exchange Rate) = (1250 USD) x (1.3325) = 1665.63 CAD

Rollover/Swap Calculation

Rollover/Swap Calculation For Forex Currency Pairs

What is Rollover/Swap in Forex Currency Pairs?

When a trading position is held open overnight and carried to the next day, it is called rollover. Each currency has an applicable interest rate, set by their central banks, known as the swap. Swap is the interest rate paid or received when the position is rolled over to the next day. Some brokers may charge commission for position rollover, which is known as mark-up. Swap rates and other related fees are usually published on the broker’s trading conditions page and can be found also in the trading platforms under asset specifications. In Long positions:

  • If the base currency has a higher interest rate than the quote, the trader receives interest.
  • If the quote currency’s interest rate is higher, the trader pays the interest.

In Short positions:

  • If the base currency has a higher interest rate than the quote, the trader pays interest.
  • If the quote currency’s interest rate is higher, the trader receives the interest.

Daily swap fee of an open position accumulates as long as the position is open. It’s not reflected in the floating Profit/Loss amount. Swaps are added to final Profit/Loss calculation and applied only when the position is closed.

How to calculate Rollover/Swap in Forex Currency Pairs?

Rollover/Swap calculation in Forex currency pairs is as follows:

  • Position Swap:
    • Swap = [(Contract Size) x (Interest Rate Difference + Mark-up) / 100] x [(Closing Price) / 365]
      • 1 Lot EUR/USD Buy position at 1.1480 closing price
        • 1 Lot = 100,000 EUR
        • EUR interest rate = 0.25%; USD interest rate = 0.75%
        • Broker mark-up = 0.25%
      •  Swap = [(100,000) x (0.25% – 0.75% + 0.25%) / 100] x [(1.1480) / 360)]
        • = [(100,000) x (-0.25%) / (100)] x [(1.1480) / 360]
        • = [(-250)] x [(1.1480) / 365] = -0.79 USD – trader pays interest
  • Account Swap: Calculated when the quote currency is different than the account currency
    • Account Swap = (Position Swap) x (Exchange Rate)
      • If the above position was opened in an EUR account, the swap calculation in USD would be converted back to EUR from the closing rate.
      • Account Swap = (-0.79 USD) / (1.1480) = -0.69 EUR

Rollover/Swap Calculation For Non-Forex Asset CFDs

What is Rollover/Swap in Non-Forex Asset CFDs?

Rollover process in non-Forex asset CFDs is similar to the Forex currency pairs. The swap rates are derived from Interbank rates and include broker mark-up. If the Interbank rate is higher than the broker mark-up, the trader:

  • Pays interest in Long positions
  • Receives interest in Short positions

If the Interbank rate is lower than the broker mark-up, the trader:

  • Pays interest regardless of the position direction.

The swap rates in non-Forex asset CFDs vary according to the asset and the position direction. Brokers publish the CFD swap rates both for Buy and Sell positions on their website.

How to calculate Rollover/Swap in Non-Forex Asset CFDs?

Rollover/Swap calculation in non-Forex asset CFDs is as follows:

  • Position Swap:
    • Position Swap = [(Contract Size)] x [(Closing Price)] x (Direction-based Swap Rate)
      • 1 Lot Gold (XAU/USD) Buy position at $1,550 closing price
        • 1 Lot = 100 ounces
        • Swap rate = -0.0028%
      • Swap = (100 ounces) x ($1,550) x (-0.000028) = -4.34 USD
  • Account Swap: calculated when the account currency is different than quote currency.
  • Account Swap = (Position Swap) x (Exchange Rate)
    • If the above example was conducted in a CAD account, at USD/CAD = 1.3225
    • Swap = (-4.34 USD) x (1.3225) = 5.74 CAD

Now that we have a firm grasp of Forex trading calculations, it’s time move on!