Information is not investment advice
If you entered EUR/USD long at 1.05000 and prices moved higher to 1.05050, it means that you made 50 points. Congratulations! You’ve earned some money. OK, you might say, but how much? Good question! Let us calculate your profits.
There is a simple formula for this:
1 point in the decimal form / the current exchange rate of the quote currency to the US Dollar/Euro = value per point.
In our case:
0.00001/ 1 = 0.00001 (rounded up). It means that you will get this sum for every point of your profitable trade.
As you can see is not a large sum of money. Well, it’s because it is the value of a pip per unit, but traders operate with a bigger number of units — so-called lots.
Calculate the profit using the FBS calculator
What is a lot?
A lot is an order of a certain number of units. Historically, spot Forex trading was only available in specific amounts of base currency called lots. A standard size of a lot equals to 100,000 units of a base currency. Later on, when Forex market opened for traders with smaller capital, a mini and even a micro lot became available.
Calculating 1 point value for different currency pairs
You may see that the smallest lot is a micro lot (1,000 units of a base currency, it is often referred to as 1K). You can trade 1 000, 2 000, 3 000 or 124 000 units so long as it can be multiplied by 1K. Each 1K is referred to as a lot.
So, if you as in the last example open a long trade with one standard lot on EUR/USD, you will be buying 100,000 units. Let’s imagine that you account is funded with the USD. In this case, your profit will be not 0.00001 USD for 1 point the price goes in your favor, but 0.00001 USD *(multiplied) 100,000 which is approximately 1 USD. You may also open trade with mini (10,000), or even micro (1,000) lots. In this case, your profits will be something like 0.1 USD and 0.1 USD per 1 point accordingly.
You should remember that the US Dollar is a quote currency in many pairs (EUR/USD, GBP/USD etc.). It means that the exchange rate of the quote currency to USD equals to 1 for an account funded with USD.
- For such pairs one point will always cost $1 when we trade a
100 000 — unit contract (1 standard lot):100 000 * 0.00001 / 1 = $1 (point value for EUR/USD)
- For the pairs where the US Dollar is a base currency (USD/CHF, USD/CAD), point value depends on the exchange rate:
100 000 * 0.00001 / 1.0195 = $0.98 (point value for USD/CHF)
- For the pairs that include the Japanese yen the pip value is calculated as follows:
100 000 * 0.001 / 120.65 = $0.828 (point value for USD/JPY)
For an account funded in EUR, 1 point in EUR/USD will cost 100 000 * 0.00001 / 1.04 = 0.96, if the current EUR/USD quote is 1.04.
2022-12-08 • Updated
Other articles in this section
- How to start trading on Forex?
- How to open a trade in MetaTrader?
- How much money do I need for Forex trading?
- Demo accounts
- MACD (Moving Average Convergence/Divergence)
- How to determine position size?
- Leverage and margin
- Swap and rollover
- Transaction, profit, loss. Types of orders
- Economic calendar
- When is Forex market open?
- Bid and Ask price. Spread
- What are pips and lots?
- How to trade?
- Currency pairs. Base and quote currencies. Majors and crosses
- What technical tools do I need for trading?
- The advantages of Forex market
- What is Forex?