Making profits in trading comes from expectations and speculations for prices. The concept is to buy a product hoping to sell it on a better/higher price or vice versa, and the difference is your profits - or losses if the market went against your trades and expectations.

As an investor, your net realized profits will be the total profit that your order/trade has made minus your broker’s spreads, commissions, and/ or any other deductions.

The equation to calculate profits or losses of a trade depends on the type of the traded instrument. For currencies, as an example, when you trade on a currency pair, the resulting profit amount is in the profit currency (second part of the currency pair). Therefore, in direct currencies where the profit currency is USD, profits are directly calculated in USD, while for indirect ones you need to exchange the resulting amount to USD according to the exchange rate at the time of closing the order.

Profit & Loss Calculation for Currencies

For Direct Currencies:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots

For Indirect Currencies:

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots / Closing Price

For Cross Currencies (where the profit currency is denominated in a direct currency):

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots X USD Exchange Rate

For Cross Currencies (where the profit currency is denominated in an indirect currency):

Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots / USD Exchange Rate

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