Having equipped yourself with the knowledge to calculate for the value of the pip, you will already be able to compute for the profit or the loss. It could again be clearly illustrated with an example.
Say for instance that you will buy U.S. dollars and sell Euros. The quoted rate is 1.2525/1.2530. In this quote, the traders will sell to you the U.S. dollars at 1.2530. Using a standard lot size of $100,000, you will then buy a single $100,000 lot at 1.2530. After about 2 hours, the prices become 1.2550 at which time you decide to close your position. This time, there is a new quote of USD/EUR at 1.2550/1.2555. Since you already want to close the trade, which you initially bought to enter, you now need to sell to be able to close your position. You therefore should take the price of 1.2550 because it is the price the traders are willing to buy. The difference from 1.2530 and 1.2550 is 0.0020 or 20 pips. Applying the formula we previously learned, (0.0001/1.2550) x $100,000 = $7.97 per pip x 20 pips = $159.40.
Some pointers to remember: You will use the offer price when buying a currency and you will use the bid price when selling a currency. You are subject to the spread in the bid or offer quote whenever you enter or exit a trade. Therefore, you pay the spread only when entering a position and not when exiting it. On the other hand, you should not pay the spread when you enter, only when you exit, if you are selling.
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