To conduct forex trading, you do not need to register at any exchange, as these trades take place between the two parties in an over-the-counter market. It is open 24 hours a day for trading. Many companies and traders use forex trading for speculations and hedging. To gain trade profits, you can predict the exchange rate and then take benefits of price movements in the FX market.
Moreover, there are mainly three different types of forex markets: spot, forward, and future forex markets. Before calculating your trade profit, you must know all about the forex market. This will help you predict better exchange rates and get more trade profits.
Overview Of Forex Trading
The forex market trades currencies and is one of the continuous trading markets in the world. The traders are not needed to visit any venue for trading. The Forex market is based on a series of connections that includes computer networks and trading terminals. Investment banks, commercial banks, retail investors, and other institutions majorly participate in this market. In Forex or foreign exchange market, buyers and sellers transfer their currencies at an agreed price.
This conversion of currency is done mainly to earn profits. The amount of currency conversion daily will have a significant effect on the price movement of the forex currencies. This volatility attracts many traders to win a chance of getting higher profits, simultaneously increasing the risk.
How To Calculate Your Trade Profit
Before entering any position and preparing your trading plan, you should calculate your estimated profit. identifying the potential profit of trade will help you in trade planning. You can either manually calculate the trade profit or you can use different calculators. There are many different calculators for different purposes such as margin calculator, Fibonacci, leverage, rebate, the risk to ruin, etc. If you want to calculate your trade profit with an advanced calculator, you can use a position size calculator.
In the forex market, profit is the difference between the opening and closing prices. While trading forex, you can open with either a long(buy) position or a short(sell) position. If you want to make a profit with long trade, you need to buy a currency at a low price and then sell it later at a high price. However, to trade with the short option, you need to sell a currency at a high price and then acquire it back at a lower price rate. This way, you can book high trade profits in FX trading.
Moreover, you can use the contract for differences formula to calculate trade profit.
Formula: (Close price – Open price) x Lot x contract size +/- Swap.
Terms involved in calculating trade profit
Close price: The price at the exit position of the trade.
Open price: The price at the entry position of the trade.
Lot: It is the total trade size in terms of units or lots.
Contract size: Actual units of asset held in position.
Swap: Fee charged for holding the position overnight.
Tips To Gain Trading Profit
Here are some tips that you should know while planning for FX trading:
- Trade with an edge to increase the probability of successful trading.
- Avoid huge losses by preserving your trading capital and playing great in defense.
- Do not use complex methods to calculate profits. Use simple strategies and technical analysis.
- Give close look at pivot levels.
- Always put stop-loss orders at reasonable price limits.
Now that you understand a brief description of forex trading, you can easily calculate your trade profit. Also, there are four major forex centers such as London, Sydney, Tokyo, and New York. you can easily set up your brokerage account and develop a better trading strategy to maximize your profits.