This section of the training explains how profit and loss calculations are performed in forex trading. Before addressing the calculation method, it is important to understand the concepts of base currency and quote currency. The currency pairs shown on trading platforms consist of two three-letter symbols representing different currencies placed side by side. For example, in the USDTRY pair, USD represents the US Dollar, while TRY represents the Turkish Lira. In this structure, the first currency (USD) is the base currency, and the second currency (TRY) is the quote currency.

For all currency pairs, the base currency is always written first, and the quote currency is written second. The base currency always represents one unit, while the quote currency can correspond to one or more units. To illustrate, when the USDTRY pair is quoted as 1.80, it indicates that one US Dollar (the base currency) equals 1 Turkish Lira and 80 kuruş (the quote currency).

Before reviewing profit and loss examples, it is essential to note that profits and losses are always calculated in the quote currency. The first example is based on the EURUSD pair. In this pair, EUR is the base currency and USD is the quote currency; therefore, the profit and loss will be calculated in US Dollars.

Assume that on May 9, 2013, at 10:00, the EURUSD selling price was 1.3050, and an investor purchased 100,000 EUR. Later in the day, at 17:00, the investor sold this position at 1.31. Since the position size was 100,000 EUR and the sale occurred 0.0005 USD higher, the profit amounts to 500 USD.

Another example involves the USDTRY pair. In this case, USD is the base currency and TRY is the quote currency; therefore, the profit or loss will be calculated in Turkish Lira. Suppose an investor bought 100,000 USD at 1.7935 and later sold them at 1.7850. The investor incurs a loss equal to the difference—0.0085 multiplied by 100,000 USD—resulting in a loss of 850 TL. Dividing this 850 TL loss by the USDTRY rate of 1.7850 provides the equivalent loss in USD terms.

A further example involves Gold versus USD. In this pair, Gold serves as the base currency, and the Dollar is the quote currency, meaning profit and loss are calculated in USD. If an investor buys 100 ounces of Gold at 1470.7 and sells at 1475.3, the price difference is 4.6 USD. Multiplying 4.6 by 100 ounces results in a profit of 460 USD.

Another illustration can be made using the AUDCAD pair. Here, the Australian Dollar (AUD) is the base currency, and the Canadian Dollar (CAD) is the quote currency. Assume an investor buys 50,000 AUD at 1.0153 and later sells at 1.0215. The resulting profit is 0.0062 points. Multiplying 0.0062 by 50,000 yields a profit of 310 CAD. Since the calculation is based on USD, this amount must be converted from Canadian Dollars to US Dollars. Assuming the USDCAD rate is 1.0115, dividing 310 CAD by 1.0115 results in a profit of approximately 306.47 USD.

These examples demonstrate how profit and loss are calculated in forex transactions. The next section will continue with an overview of the risks associated with forex trading.