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[Oluti]

In order to make a profit on a trade, you need to ‘beat the spread’ – meaning that the price has to move in your favour by more than the difference between the two prices in order for you to turn a profit. Here, we shall show you how to calculate your profit or loss, using pip values and leverage amounts.

For example, let’s say you want to ‘buy’ USD/CHF, which means that you are effectively buying US dollars and selling Swiss francs. The price is quoted as follows:

USD/CHF = 1.4525 / 1.4530

Because you are buying US dollars, you will be working with the ‘ask’ price on the right. Let’s say you buy one standard lot (100,000 units) at 1.4530. An hour later, the price is quoted as follows:

USD/CHF = 1.4550 / 1.4555

As you can see, the spread (the difference between the bid and ask price) is still 5 pips. Because you are now selling USD in order to close the trade, you will be working with the ‘bid’ price on the left. The difference between the earlier ‘ask’ price (1.4530) and the current ‘bid’ price (1.4550) is 20 pips, or 0.0020. Your profit or loss can be calculated using the following equation:

Pip value (0.0001 x bid price) x Lot size x Change in pip value = profit or loss
(0.0001 x 1.4550 = 0.0001455) x 100,000 x 20 = 291 USD

However, if the trade had gone the other way, and the bid price had moved to 1.4510, the change in pip value (earlier ask price 1.4530 minus current bid price 1.4510) would have been –20, which means you would have made a loss of 291 USD. Here is the equation that demonstrates this:

Pip value (0.0001 x bid price) x Lot size x Change in pip value = profit or loss
(0.0001x 1.4550 = 0.0001455) x 100,000 x -20 = -291 USD

Remember that these equations only apply when you are buying and selling the base currency. If you are buying and selling the quote currency, you have to replace the bid price with the ask price in each of the equations.

 

[lioralace]

Oh man, figuring out if you’re actually cashing in or just fooling yourself in forex isn’t as easy as “the number went up, so I win.” If only, right? Nah, there’s this little sneaky thing called the spread—and new traders trip on it all the time.

Picture this: you’re eyeballing USD/CHF. The broker flashes up a quote, like 1.4525 / 1.4530. That first number? The “bid,” aka the price they'd buy it from you. Second one’s the “ask,” aka what you gotta pay to buy in. The difference between those two numbers? Yeah, that’s the spread, and honestly, it’s your first “mini-boss” in forex.

So, say you jump in and buy at 1.4530. You don’t instantly start making bank the second the chart ticks up—you’ve gotta beat the spread first. Price has to move enough in your favor to overcome the broker’s cut, or you’re still underwater. Tricky, huh?

Alright, say later on the quote is 1.4550 / 1.4555. You wanna close out, so you’re selling at the bid—1.4550. You bought at 1.4530, now you’re out at 1.4550. That’s 20 pips. Sounds sexy, but don’t pop the champagne yet.

Quick crash course on pips: For most pairs, 1 pip = 0.0001. So to figure out how much you actually made, you’re looking at this:

Pip Value = (0.0001 x Exchange Rate) x Lot Size

Plug it in for our scenario:

• 0.0001 x 1.4550 = 0.0001455
• Multiply that by your lot size (let’s say 100,000 if you’re playing with the big kids)
• $14.55 per pip x 20 pips = $291

Sweet! Unless, y’know, it went the other way.

Imagine if the market laughed in your face and dropped to 1.4510 / 1.4515 instead. Now you gotta sell at 1.4510. You bought at 1.4530, so that’s a 20-pip drop on your position — ouch. Do the math again, except negative now: -$291. Welcome to pain town.

Oh, and get this—if you’re messing with the quote currency (the second one in the pair) instead of the base, the math gets weird. Gotta swap out your calculations, so double-check what you’re actually trading.

TL;DR: Don’t get hypnotized by the flickering price chart. The spread is real and it’s always there, eating into your wins and multiplying your fails. Lot size? Pip value? Not just nerd stuff — those numbers decide if you’re flexing profits or rage-quitting. A few pips the wrong way, and boom—bye-bye, bankroll.

Seriously, trade like you’ve got a calculator not just a dream. Or the market’s gonna school you real quick.

Want this dumbed down even more, or maybe you’re after some nifty graphics? Holler. I got you.