How is profit calculated in Forex trading? Normaly profit=selling price -buying price. That is notso in forex -

The AUD/USD rate is quoted at 0.7500/04 . This quote represents the bid/offer spread for AUD vs USD. The offer rate of 0.7504 is the rate at which you can purchase AUD (or BUY AUD and SELL USD). The bid rate of 0.7500 is the rate at which you can Sell AUD to buy USD. You believe that the Australian Dollar will strengthen against the US Dollar, and decide to BUY or go long A$100,000 @ 0.7504 (the offer price). Quote (bid/offer) 0.7500/04 Buy Price 0.7504 Volume A$100,000 Initial Outlay (1% margin) A$1,000 In the example above you have purchased A$100,000. But because FX is traded on margin with CMC Markets you will only need A$1,000 (1%) to maintain the same market exposure. The risk on this AUD/USD trade is equivalent to US$10 per each point movement. Each point is valued at 0.0001. For example if the AUD/USD rate moves from 0.7504 to 0.7505 you will receive a profit of US$10. Your prediction is correct and the Australian Dollar appreciates against the US Dollar. The quote on AUD/USD is now 0.7590/94. To close your position, you decide to SELL A$100,000 @ 0.7590 (the bid price). Quote (bid/offer) 0.7590/94 Sell Price 0.7590 Volume A$100,000 Profit/Loss US$860 Profit Your profit and loss is usually calculated in the secondary currency. Therefore the above AUD/USD trade profit/loss is calculated in US Dollars. With CMC Markets no brokerage or commission charges will be subtracted from your gross profit. You will only be charged a financing cost if you hold your position overnight. Profit/loss Calculation: Size of trade x (sell price - buy price) = profit amp; loss USD 100,000 x (0.7590 - 0.7504) = US$860 profit Or, converting the US$860 back to A$ at a rate of 0.7590 (Profit/loss ? AUD rate) = profit amp; loss AUD (860 ? 0.7590) = A$1,133.07 profit By closing your position you realise a gross profit of A$1,133.07 If you anticipated incorrectly and sold AUD at 0.7500 and later bought AUD at 0.7594, a loss of US$940 would have been experienced. Currencies are measured in pips. Just use the last two or three numbers in the quote. It is measured like a futures contract, with a multiplier. If the British Pound moves 100 pips, you make/lose $1,000 for a standard contract, or $100 for a mini contract. Same for the other currencies.