It is not easy to calculate your Forex profit. With so many figures to consider, it is essential to have a good grasp of what each one means before you invest any money. To demonstrate how the profit works, we will use a EUR/GBP spread.
Live trading examples
If the spread is 0.8414-0.8415, then the offer price is 0.8415 so you would use GBP to buy EUR at that price. You could purchase €10,000 at the cost of £8415. If this spread then increases to 0.8532-0.8533, you can then sell the Euros at the 0.8532 figure. You can then sell the €10,000 for £8532. The profit is the difference between the figure that you sold at and the figure that you bought at. In this example, this is £117. Your gain will always show in the currency that you use to buy.
However, if you think the price of the Euro will drop then you could sell the same amount you bought for the original bid price, which showed at 0.8414. This means that you will get £8414 for them. In this example, you were right to think it might drop and the spread reduces to 0.8312-0.8313. You can then purchase them back at the new lower offer price, costing you £8313. You have made money on this Forex transaction as you were able to repurchase them at a lower cost than you sold them for. This works if you trade new assets also.
Transactions can be confusing as there are so many figures and currencies involved in Forex trading. It is recommended to try ‘dummy’ trading first so you can practice without taking any risks with your own money. Understanding how the trades work, and how to make a profit, is fundamental, so learning as much as possible before you get started is essential.