Forex Money: How To Keep Score

Let's talk about Forex Money.  We’ve lumped all of these together because they’re how you keep score.  You already know that a pip is the smallest number in the exchange rate, and that a lot is the unit in which currency trades are made. Profit and loss should be self-evident if you’ve read this far.

What we’re going to do is start by discussing how pips are converted to money, and then go into some of the details of calculating profit and loss. You’re going to have to deal with both, so it’s best to know how to figure them.

One thing you will notice is that the exchange rate for the Yen looks different than that for other currencies. That’s because no smaller denominations  than a single Yen are currently circulated, so everything is carried to the same number of significant figures, two decimal points beyond the smallest coin in use. For all practical purposes, the Yen can be considered the Japanese equivalent of the cent, not the dollar.

However, don’t let it worry you, the details of the calculation may vary, but the basic calculation is always going to be the same regardless of which currency pair you’re using.

So, let’s move on to some detail and examples:

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