Forex trading, also known as foreign exchange trading, is the buying and selling of currencies with the goal of making a profit. As with any investment, it is important to calculate your percentage return in order to evaluate the success of your trades. This article will explain how to calculate percentage return on forex.
Step 1: Determine your initial investment
Before you can calculate your percentage return, you need to determine your initial investment. This is the amount of money you used to buy or sell a currency pair. For example, if you buy 10,000 euros at a rate of 1.20 USD/EUR, your initial investment would be $12,000.
Step 2: Determine your final investment
Your final investment is the amount of money you have at the end of your trade. This includes any profits and losses. For example, if you sell your 10,000 euros at a rate of 1.25 USD/EUR, your final investment would be $12,500.
Step 3: Calculate your profit or loss
To calculate your profit or loss, you need to subtract your initial investment from your final investment. In our example, the profit would be $500.
Profit = Final Investment – Initial Investment
$12,500 – $12,000 = $500
If your final investment is less than your initial investment, you would have a loss instead of a profit.
Step 4: Calculate your percentage return
Now that you know your profit or loss, you can calculate your percentage return. This is the percentage increase or decrease in your investment. To calculate your percentage return, you need to divide your profit or loss by your initial investment and multiply by 100.
Percentage Return = (Profit / Initial Investment) x 100
In our example, the percentage return would be:
Percentage Return = ($500 / $12,000) x 100 = 4.17%
This means that your investment increased by 4.17%. If your percentage return is negative, it means that you lost money on your investment.
Why is calculating percentage return important in forex trading?
Calculating percentage return is important because it allows you to evaluate the success of your trades. By knowing your percentage return, you can determine whether you are making a profit or a loss. This information can help you make better trading decisions in the future.
In addition, calculating your percentage return can help you set realistic goals for your forex trading. If you know what percentage return you need to achieve in order to reach your financial goals, you can adjust your trading strategy accordingly.
Calculating percentage return on forex is a simple process that can help you evaluate the success of your trades. By determining your initial investment, final investment, profit or loss, and percentage return, you can gain valuable insights into your trading performance. Use this information to make better trading decisions and achieve your financial goals.