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Forex trading involves the buying and selling of currencies in order to make a profit. As with any trading activity, there is the potential for both profit and loss. Calculating profit and loss in forex trading is important to understand the success or failure of your trades. In this article, we will explain how to calculate profit and loss in forex trading.

Pips and Lots

Before we dive into calculating profit and loss, it's important to understand the terms "pips" and "lots." A pip is the smallest unit of measure in forex trading, and it represents the fourth decimal place in a currency pair. For example, if the EUR/USD currency pair moves from 1.2000 to 1.2001, that's a one pip move.

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