Hi,
I am a Forex newbie with a good deal of futures experience.
My question is - how to convert the profit or loss of a Cross currency (non-USD cross pair such as EUR/JPY) into USD?
The book I purchased "Getting Started in Currencies" has applicable formulas.
"Price Change = Exit Price - entry price"
"Conversion rate is the currency pair with the USD and the quote currency of the cross rate pair"
Case 1. "If the base currency of the conversion rate = USD then
Profit in USD= Price change x Units traded / Conversion rate"
Case 2. "If the quote currency of the conversion rate = USD then
Profit in USD = Price change x Units traded x Conversion rate"
In both Cases the author has one using the "current price" of the conversion rate pair.
The problem is he does not define the "current price". Is it the bid or the ask?
Here is an example of Case 1 where the base currency of the conversion rate pair is USD.
Ex. Buy 100,000 EUR/JPY at 157.13 then later sell 100,000 EUR/JPY at 157.53
i. 157.53-157.13= .4x100000 = 40,000 JPY profit.
ii. To convert to US dollars find Conversion pair = currency pair with both JPY and USD = USD/JPY
iii. For our example assume the quote of USD/JPY is currently 105.30 - 105.32
Question 1: To convert the 40,000 JPY profit into USD do I divide it by the USD/JPY bid (105.30) or ask (105.32)?
Question 2: If I sold EUR/JPY first and then bought to close the trade resulting in a 40,000 JPY profit would I divide it by the USD/JPY bid or ask?
Question 3: If I have a loss instead of a profit from a EUR/JPY trade, does that change what I divide the loss by (bid or ask)?
Lastly, please inform me whether or not your answers are changed if USD is the quote currency - and therefore would multiple the profit or loss by the "current price" of the applicable USD pairing.
Thanks in advance for your assistance,
Robert
I am a Forex newbie with a good deal of futures experience.
My question is - how to convert the profit or loss of a Cross currency (non-USD cross pair such as EUR/JPY) into USD?
The book I purchased "Getting Started in Currencies" has applicable formulas.
"Price Change = Exit Price - entry price"
"Conversion rate is the currency pair with the USD and the quote currency of the cross rate pair"
Case 1. "If the base currency of the conversion rate = USD then
Profit in USD= Price change x Units traded / Conversion rate"
Case 2. "If the quote currency of the conversion rate = USD then
Profit in USD = Price change x Units traded x Conversion rate"
In both Cases the author has one using the "current price" of the conversion rate pair.
The problem is he does not define the "current price". Is it the bid or the ask?
Here is an example of Case 1 where the base currency of the conversion rate pair is USD.
Ex. Buy 100,000 EUR/JPY at 157.13 then later sell 100,000 EUR/JPY at 157.53
i. 157.53-157.13= .4x100000 = 40,000 JPY profit.
ii. To convert to US dollars find Conversion pair = currency pair with both JPY and USD = USD/JPY
iii. For our example assume the quote of USD/JPY is currently 105.30 - 105.32
Question 1: To convert the 40,000 JPY profit into USD do I divide it by the USD/JPY bid (105.30) or ask (105.32)?
Question 2: If I sold EUR/JPY first and then bought to close the trade resulting in a 40,000 JPY profit would I divide it by the USD/JPY bid or ask?
Question 3: If I have a loss instead of a profit from a EUR/JPY trade, does that change what I divide the loss by (bid or ask)?
Lastly, please inform me whether or not your answers are changed if USD is the quote currency - and therefore would multiple the profit or loss by the "current price" of the applicable USD pairing.
Thanks in advance for your assistance,
Robert