What Is P/L & How Is It Calculated in Forex Trading?

Although it can be potentially profitable when you know what you are doing, forex can also be a risky market to participate in, making it critical to understand what P/L is and how it is calculated in forex trading.

P/L means profit and loss, and the P/L ratio functions as a scorecard for active traders. Additionally, realized (profit or loss in your closed positions) and unrealized P/L (profit or loss held in your current open trades) must also be considered.

For example, if you were to close out your USD/CAD, EUR/CHF, and GBP/JPY positions, and you enjoyed a winning average of $75 per trade and an average loss of $25, your P/L ratio would be 3:1.

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How to Calculate P/L in Forex

To determine your P/L ratio, you must calculate the average profit on your winning trades divided by the average loss on your losing trades over a given period:

• P/L ratio= Winning trades over (X) period / Losing trades over (X) period

Use these P/L formulas to calculate the profit or loss for your current open trades:

• Buy formula = (Current rate - Open rate) x Units x USD exchange rate
• Sell formula = (Open rate - Current rate) x Units x USD exchange rate

You can also calculate your P/L for your long and short positions from these formulas.

P/L does not have to be calculated manually as there are automated solutions available. However, it remains important to understand how the calculation works and which factors influence it.

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