The Relevance of the Floating Profit/loss in your Trade

Floating Profit/Loss

Floating profit/loss is an important part of Forex trading. Forex trading is not just about buying a currency at a low price and selling the same at a higher price. This phenomenon is not as simple as it may seem and that is what makes Forex trading a challenging profession since it is very difficult to be benefited from buying and selling at all times. Most of the times the Forex traders sell a currency whose value has been appreciated but do not sell currencies with a declining rate. They do so hoping that currencies with a declining rate will also appreciate some fine day. Many a time, their values keep shrinking over a period of time. Such a scenario can be avoided if traders calculate their floating profit/losses strategically.

First of all, determine the limits of your floating profit/losses. It can be done by deciding as to how much profit would you expect from trading and also set the limit as how much loss you are ready to bear. These limits would vary for each currency pair depending on your data analysis as to how much each currency may incline towards floating profit/loss. These limits can easily be set by using the combination of fundamental analysis and technical analysis. The limits that you set for yourself is also a result of your risk-taking nature and the amount of money that you are going to invest in Forex trading. For example, an investor with a risk-taking nature would keep the currencies even when its value has appreciated as he/she foresees better value in the times to come. On the other hand, a person who does not like to take risk would sell a currency as soon as its value appreciates as he would not like to take the risk in the fear that its value may decline in future.

Practice Forex Trading

Once you determine limits of floating profit/loss that you are ready to accept then stick to these guidelines. Then there is no point regretting when the prices of the currency that you have just sold keep on increasing since you were not ready to bear the risk of losing which that particular currency could have brought. Therefore, to determine these guidelines, for yourself need to be done only after intensive and detailed analysis, realistic decisions and assessing the limits according to your risk-taking nature.

Any online broker may provide you the services of calculating floating profit/loss but if you know how to do it then you can crosscheck if he is not making a fool of you. Before calculating you need to know the difference between ‘base’ and ‘quote’ currencies. Basically, base currency is the former currency in pair and the latter currency is the called the quote currency. Therefore in case USD is a base currency you can calculate the profit by multiplying change in prices of pips with the exit price or the units that are traded (Profit= change of price in pips x units that are traded or the exit price). If USD is a quote currency then you can use the formula: profit = change in price of pips x units that are traded.

Article courtesy of eToro