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How to create trading robots with forex EA generator

Forex EA generator can create amazing money-making robots for you without requiring any programming skills or other technical skills. We call it forex robot factory which is a very easy to use expert advisor generator. You can easily develop an application that automatically makes trades on your behalf. In this article, we’ll talk about how to create trading robots with the forex EA generator from forex robot academy.

What is forex expert advisor generator?

A forex expert advisor generator is an online-based application that can help you in creating profitable automated trading strategies without a single line of code.

Instead of using an EA builder or hiring a programmer to develop a robot, the expert advisor generator eliminates the time consuming and often difficult process of creating an EA and automates the entire process for you.

With this online-based tool, you can develop reliable robots and deploy them both to the metatrader 4 and metatrader 5 trading platforms.

You do not need to be a programmer or possess some genius technical skills to start using this forex strategy generator.

You only need to choose what indicators you want to use, input few simple trading criteria into the robot generator, and the rest of the magic will be automatically completed for you.

The tool will automatically create an EA and backtest its profitability using its in-built platform features.

Since the backtesting results are provided real-time, you can modify your trade entry and exit rules until you come up with a strategy that best fulfills your needs.

Here are the core components of the forex robot factory EA generator.

Generator: this component automatically creates and backtests the provided strategies. You can also use the reactor mode to automate the entire EA creation process.

Collection: this component stores the generated strategies, allowing you to sort them according to their profitability as well as other parameters.

Editor: this component enables you to create and edit strategies before exporting them as MQL files. You can backtest your trading rules against historical data in seconds and sufficiently refine them before using them for live trading.

Optimization tools: the EA generator has various tools for optimization of trading rules against a wide range of trading conditions.

Validation tools: these include stress tester (monte carlo), multi-market tester, and anti-curve-fit tester (IS/OOS).

Report: this section gives comprehensive details about each strategy’s testing results.

Exporter: this feature allows you to conveniently export the created EA to your metatrader platform.

Reactor: this is one of the best components of the forex robot factory. The reactor is a new and easy way to automate the workflow of trading strategy programming, backtesting, optimizing and stress testing to find your best forex robots today.

What is a forex robot?

A forex robot also referred to as an expert advisor, refers to a software with inbuilt trading rules that automatically determine when to enter or exit the market.

Automated trading systems are ideal for overcoming the disadvantages of manual trading and providing you with a profitable method of earning massive profits from the forex market.

With expert advisors, you can trade non-stop, eliminate emotion-based trading decisions, and greatly reduce trading errors.

If you still rely on the traditional manual trading methods, you are prone to making greed-driven trading decisions, making silly trading mistakes due to fatigue, and increasing your losses due to ill-timed decisions.

Manual trading typically glues you to the computer screen; otherwise, you’ll miss those ripe trading opportunities.

On the other hand, robot trading eliminates that need and provides you with the freedom you need to effortlessly earn massive profits from forex trading.

After you’ve put your strategies into a robot, your trades will be automatically executed without your direct intervention.

Furthermore, you can program multiple strategies into expert advisors and greatly increase your profits, something difficult to achieve with manual trading.

Create expert advisor without programming

For a long time, creating an expert advisor for metatrader 4 required that you have advanced programming skills and other technical skills.

However, presently, it’s possible to create expert advisor without programming skills or hiring the services of a programmer.

By using the forex robot generator, you can create profitable expert advisors without ever worrying about any line of code.

With the EA generator such as forex robot factory, you can transform any manual trading system into an expert advisor without writing complicated codes.

Expert advisor programming, just like most programming languages, is difficult to master.

You may need to spend lots of money and invest a lot of your time learning how to create forex robots that work.

However, the expert advisor builder and generator saves you the money and the hard work and provides you with an intuitive platform to create an expert advisor without programming.

You’ll just need to select which currency and time frame you want to trade and hit the START button. The rest will be automatically completed for you.

The expert advisor generator for MT4 and MT5 is what you need to enjoy the benefits of robot trading.

After creating your expert advisor for metatrader 4 or 5, you’ll also get backtested results, which allow you to gauge the profitability of your automated trading systems.

This way, you can conveniently fine tune it until you generate an EA that can deliver maximum profits from your efforts.

Forex expert advisor generator

As earlier mentioned, the forex robot generator allows you to automatically create money-making robots against the defined parameters.

Here’s a simple step by step process of how to create forex robots using the forex robot academy online-based tool:

Step 1: define parameters of your trading strategy

First, you need to define parameters of a trading strategy to entrench into the robot. You can try your strategy under simulated forex trading conditions to ensure it works according to your preferences.

Step 2: input strategy parameters

Under the generator tab, set the data source, currency pair symbol, and your preferred trading period.

Input strategy parameters into forex robot factory

Next, define your strategy properties. You’ll set entry lots, stop loss, pips, and take profit parameters.

Setting strategy properties forex robot factory

Specify, the other generator settings.

Specifying other generator settings

Starting the generation process of forex robots

Thereafter, the generator will automatically create the strategy for you.

In addition, the generator will backtest the created strategies by utilizing advanced criteria and displaying the tested results.

Then, click the “stop” button.

Stopping the generation process of forex robots

Step 3: sort the generated strategies

The collection section stores all the generated trading strategies. Here, you can sort the strategies using the available statistical parameters.

Sort the generated strategies to find best forex robots

Step 4: edit the strategies

You can use the editor to create and refine your strategies through utilizing indicators and other parameters.

With the editing tool, you can easily review your strategies before exporting them as MQL files.

When editing your strategies, the tool will perform a backtest against historical data, allowing you to determine if you are on the right track.

Reviewing forex robot trading rules

Step 5: optimize the robot

The MT4 EA generator has various tools to optimize your trading strategy and also validate it on a wide range of trading conditions.

For example, you can use the stress tester and the multi-market tester to gauge the robustness of your trading strategies against different market conditions.

When optimizing your strategy, remember to check the backtest results to ensure they are satisfying.

Optimizing forex robot for best results

Step 6: examine the report

Check the report page for comprehensive information about the performance of your strategy against historical data. The page also has statistics information, an indicator chart, and other useful information.

If the backtest results are not satisfying, it could mean that you need to refine your strategy further or just generate a new collection of robots to find better ones. It takes several minutes anyway.

Examining the report of forex robot backtest results

Step 7: export the robot

After creating the robot, you can export it to your MT4 or MT5 trading platform. Since the created EA is based on standard metatrader indicators, using it on the platform is easy and convenient.

Exporting forex robot into MT4 or MT5 format

It’s important to test the performance of the exported expert advisor in simulated forex trading conditions before launching it for live trading.

This way, you can verify its profitability and make any changes, if necessary.

Forex robots that work

Using the forex strategy generator is the surefire method of generating expert advisors that work.

Presently, the internet is clouded with several types of robots falsely promising quick and huge gains.

In most cases, these robots are only meant to swindle money from unsuspecting users. Before purchasing any robot, it’s critical that you perform a background check to ascertain its profitability. Also, it’s important to know what trading strategy trading robot is using, otherwise you are buying a pig in a poke.

If a flashily advertised robot cannot authenticate its profitability, then do not waste your money in using it for live trading.

The forex advisor generator from the forex robot academy is reliable and will assist you to create real profitable eas within seconds.

Furthermore, the generated robots are already tested against historical data and comes with settings that can be optimized for any trading condition.

So, you are sure of getting authentic forex robots that work.

Expert advisor tester

The forex EA generator online has an inbuilt strategy tester that can assist you to create the best robot for your needs.

Although the expert advisor tester is the same with the metatrader strategy tester, it’s much faster and more efficient.

This powerful tool is capable of backtesting trading robots against the provided historical data so that you know its strategy has been working in the past. This is something difficult to achieve with any other EA builder.

While using the MT4 code generator, the tester will be automatically running in the background and evaluating your strategies according to its algorithm.

This process enables you to assess how the EA could have performed in the past.

As such, you can provide different input parameters and run them against the tester to check their viability. This way, you can always create forex robots that work.

More so, it’s advisable that you should try your generated strategies under simulated forex trading conditions before launching them to a real account.

Forex robots list

The forex robot generator allows you to create a wide range of trading robots—from simple eas to complicated eas capable of trading varied strategies.

With the huge list of robots that you can produce using the tool, you cannot miss something that meets your tastes and preferences.

Regardless of your trading style, the generator can assist you to create forex robots that work.

For example, if you prefer long-term trading, you can create a robot that is capable of long-term trading.

Here are just a few forex robot types that can be created:

Williams R expert advisor

Forex robot with RSI

Forex robot based on moving averages

Expert advisor for micro accounts

Expert advisor for different standard accounts

And many others

Here’s a full list of MT4 & MT5 indicators that are available in the forex robot factory:

Accelerator oscillator

Accumulation distribution

Alligator

Average true range

Awesome oscillator

Bears power

Bollinger bands

Bulls power

Commodity channel index

Demarker

Directional indicators

Envelopes

Force index

MACD

Momentum

Money flow index

Moving average

Moving average of oscillator

Moving averages crossover

On balance volume

Standard deviation

Stochastic

Volumes

Williams’ percent range

Forex strategy builder

In expert advisor programming, most developers make the mistake of not properly defining their trading rules.

As a result, this often leads to increased losses and poor EA performance.

The EA generator tool tries to overcome this problem by providing a reliable forex strategy builder to assist you in clearly defining trading rules and other parameters.

With the inbuilt strategy builder, you can manually create eas, which allows you to define their own profitable automated trading rules. How do you know that? Well, forex robot factory will test your trading rules on historical data in a few seconds and show whether the strategy was or was not profitable in the past.

Therefore, the forex advisor generator is the best option for building reliable eas with well-defined trading rules.

What’s more, as mentioned before, the EA generator provides backtest results, which allows you to optimize your trading rules for maximized profitability in the forex market.

Expert advisor programming

Instead of manual trading, expert advisor programming allows you to create robots that can automatically enter and exit the market on your behalf.

Although you can develop an EA using MT4 programming, it’s much more expensive and tedious than using the forex EA generator online.

The web-based MQL4 code generator assists you to conveniently create profitable robots within seconds and without any technical skills.

With the EA generator, you can develop competent robots without requiring any programming skills.

Furthermore, the created robot can be exported either in MQL4 format or in MQL5 format, enabling you to seamlessly integrate it into your preferred trading platform.

If you have some programming experience, you can incorporate additional rules into the robot to ensure it’s optimized to your needs.

Conclusion

The forex EA generator is the tool you need to create real money-making robots without ever worrying about any complicated lines of code.

It’s the world’s first forex advisor generator that has been developed with the needs of traders in mind.

The online-based application allows you to generate profitable robots without any technical skills and within your budget.

If you want to develop winning forex robots within seconds and take your trading career a notch higher, then use the forex robot factory.

How to create your own COT trading indicator

Having your very own COT indicator is like having your own pony.

Using the COT report can be quite useful as a tool for spotting potential reversals in the market.

There’s one problem though, we cannot simply look at the absolute figures printed on the COT report and say, “aha, it looks like the market has hit an extreme… I will short and buy myself 10,000,000 pairs of socks with my easy profits.”

What may have been an extreme level five years ago may no longer be an extreme level this year.

How do you deal with this problem?

What you want to do is create an index that will help you gauge whether the markets are at extreme levels.

How to create an index that measures market extremes

Below is a step-by-step process on how to create this index.

Decide how long of a period we want to cover. The more values we input into the index, the less sentiment extreme signals we will receive, but the more reliable it will be. Having fewer input values will result in more signals, although it might lead to more false positives.

Calculate the difference between the positions of large speculators and commercial traders for each week.

Difference = net position of large speculators – net position of commercials

Take note that if large speculators are extremely long, this would imply that commercial traders are extremely short.

This would result in a positive figure.

On the other hand, if large speculators are extremely short, that would mean that commercial traders are most likely extremely long. This would result in a negative figure.

This would result in a negative figure.

Rank these results in ascending order, from most negative to most positive.

Assign a value of 100 to the largest number and 0 to the smallest figure.

And now we have a COT indicator!

This is very similar to the RSI and stochastic indicators that we’ve discussed in earlier lessons.

Once we have assigned values to each of the calculated differences, we should be alerted whenever new data inputted into the index shows an extreme: 0 or 100.

Remember, we are interested in knowing whether the trend is going to continue or if it is going to end.

If the COT report reveals that the markets are at extreme levels, it would help pinpoint those tops and bottoms that we all love so much.

You can download the COT indicator if you’re trading on an MT4 platform and you can find the link in our COT data to indicator forum thread!

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Making your first forex trade

In this tutorial, we are going to use fxtrade, the oanda trading platform, as the example.

Start the trading platform

The very first step when in making your first forex trade is opening the trading platform.

Step 2 - open the chart

Oanda Trading Tutorial Step 2 Open Chart Set Time Frame

Now choose a currency pair and open a chart. Select a timeframe. In this case, we are going to use a 15-minute time frame. Each candlestick on the chart represents 15 minutes of time.
For this example, I am going to use the australian dollar vs the japanese yen, AUD/JPY pair. It is showing a strong downtrend and looks like a simple trade.

Step 3 - add indicators

Now add some indicators to the chart. For this chart, we are going to add MACD and a 200 exponential moving average. Using technical indicators is an option when forex trading. They are helpful for the decision-making process.
The basic rule for using the 200 EMA is if the price is above the line, it is likely to continue higher if the price is below the line, it is likely to continue lower. The price seems to be moving below the 200 EMA line. This confirms that the price is in a stable downtrend.

Please understand that if we are selling AUD/JPY that we are buying japanese yen and selling the australian dollar. Therefore, will be looking for JPY strength and/or AUD weakness.
I am going to use the MACD indicator to look for a confirmation that the price is ready to go down again. The MACD is not always reliable as an indicator when used alone, but when used as part of a larger trading system it can be helpful to pinpoint a possible turn in price. The price seems to be fighting the downtrend a bit, so I am looking for the MACD lines to cross and head down before I make my trade.

Step 4 - place the order

Now prepare to place the order. I have confirmed that the price is in a stable downtrend so I am preparing to "go short". The short trade is for 10,000 australian dollars against the japanese yen. This is also known as going short 1 mini lot.

Step 5 - set the stop loss and take profit levels

Now set your stop loss and take profit levels. This step is optional but highly recommended.

Experienced traders have found that setting a stop loss at half the pip amount or less than your take profit level can set you up for long-term success. This is because you can be right less than half the time and still come out at the end of the week, month, year ahead if you have a favorable risk-reward.
Setting the stop loss will limit your losses if the market does not move in the preferred direction. Setting the take profit level will make sure that the trade exits in profit once the market makes the downward move that is expected. It can be an advantage to set these levels when you place the trade because once the trade is actually in the market, the pressure can make it difficult to make decisions.

Step 6 - order confirmation

Submit your order and wait for the confirmation screen. The confirmation is important as is the ticket number because you may need to reference the ticket number if you need to call your broker about the trade. Of course, you don't want anything wrong to happen with execution, but if there is a mistake in execution on the part of your broker you will need to go to them with your confirmation and ticket number so that they can correct their mistake and credit your account back if necessary.

Step 7 - the waiting period

Now the waiting period begins. This is one of the more difficult concepts in forex trading. Some traders find it helpful to turn off the screen and get away from the market once they've entered so that they are not constantly fretting over market moves. Either way, sticking to a good risk reward is a favorable approach and whether your stop or take profit order gets hit, you have done your job correctly.

Step 8 - trade completion

Finally, the trade is complete. This trade has resulted in a successful take profit. The take profit level for this trade was 98.00 and the price did reach that level. This resulted in a profit of $63.60.

Not all trades result in a profit, and you should take measures to limit your risk on any trade.

How to make money trading forex

How does forex trading work?

In the forex market, you buy or sell currencies.

Placing a trade in the foreign exchange market is simple. The mechanics of a trade are very similar to those found in other financial markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

And if you don’t, you’ll still be able to pick it up….As long as you finish school of pipsology, our forex trading course!

The objective of forex trading is to exchange one currency for another in the expectation that the price will change.

More specifically, that the currency you bought will increase in value compared to the one you sold.

Trader’s action	EUR	USD
you purchase 10,000 euros at the EUR/USD exchange rate of 1.1800	+10,000	-11,800*
two weeks later, you exchange your 10,000 euros back into U.S. Dollar at the exchange rate of 1.2500	-10,000	+12,500**
you earn a profit of $700	0	+700

*EUR 10,000 x 1.18 = US $11,800
** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency.

For example, the USD/CHF exchange rate indicates how many U.S. Dollars can purchase one swiss franc, or how many swiss francs you need to buy one U.S. Dollar.

How to read a forex quote

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY.

The reason they are quoted in pairs is that, in every foreign exchange transaction, you are simultaneously buying one currency and selling another.

How do you know which currency you are buying and which you are selling?

Excellent question! This is where the concepts of base and quote currencies come in…

Base and quote currency

Whenever you have an open position in forex trading, you are exchanging one currency for another.

Currencies are quoted in relation to other currencies.

Here is an example of a foreign exchange rate for the british pound versus the U.S. Dollar:

The first listed currency to the left of the slash (“/”) is known as the base currency (in this example, the british pound).

The base currency is the reference element for the exchange rate of the currency pair. It always has a value of one.

The second listed currency on the right is called the counter or quote currency (in this example, the U.S. Dollar).

In the example above, you have to pay 1.21228 U.S. Dollars to buy 1 british pound.

When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency.

In the example above, you will receive 1.21228 U.S. Dollars when you sell 1 british pound.

The base currency represents how much of the quote currency is needed for you to get one unit of the base currency

If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.

In caveman talk, “buy EUR, sell USD.”

You would buy the pair if you believe the base currency will appreciate (gain value) relative to the quote currency.

You would sell the pair if you think the base currency will depreciate (lose value) relative to the quote currency.

With so many currency pairs to trade, how do forex brokers know which currency to list as the base currency and the quote currency?

Fortunately, the way that currency pairs are quoted in the forex market is standardized.

You may have noticed that currencies quoted as a currency pair are usually separated with a slash (“/”) character.

Just know that this is a matter of preference and the slash may be omitted or replaced by a period, a dash, or nothing at all.

For example, some traders may type “EUR/USD” as “EUR-USD” or just “EURUSD”. They all mean the same thang.

“long” and “short”

First, you should determine whether you want to buy or sell.

If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price.

In trader talk, this is called “going long” or taking a “long position.” just remember: long = buy.

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price.

This is called “going short” or taking a “short position”.

Just remember: short = sell.

How to make money trading forex by going long and short at the same time.

Flat or square

If you have no open position, then you are said to be “flat” or “square”.

Closing a position is also called “squaring up“.

The bid, ask and spread

All forex quotes are quoted with two prices: the bid and ask.

In general, the bid is lower than the ask price.

What is “bid”?

The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency.

This means the bid is the best available price at which you (the trader) can sell to the market.

If you want to sell something, the broker will buy it from you at the bid price.

What is “ask”?

The ask is the price at which your broker will sell the base currency in exchange for the quote currency.

This means the ask price is the best available price at which you can buy from the market.

Another word for ask is the offer price.

If you want to buy something, the broker will sell (or offer) it to you at the ask price.

What is “spread”?

The difference between the bid and the ask price is known as the SPREAD.

On the EUR/USD quote above, the bid price is 1.34568 and the ask price is 1.34588. Look at how this broker makes it so easy for you to trade away your money.

If you want to sell EUR, you click “sell” and you will sell euros at 1.34568.

If you want to buy EUR, you click “buy” and you will buy euros at 1.34588.

Here’s an illustration that puts together everything we’ve covered in this lesson:

Design your trading system in 6 steps

The main focus of this lesson is to guide you through the process of designing your own forex trading system.

While it doesn’t take long to come up with a system, it does take some time to extensively test it.

Create Your Forex Trading System in Six Steps

Step 1: time frame

The first thing you need to decide when creating your system is what kind of forex trader you are.

This will help determine which time frame you will use to trade. Even though you will still look at multiple time frames, this will be the main time frame you will use when looking for a trade signal.

Step 2: find indicators that help identify a new trend.

Since one of our goals is to identify trends as early as possible, we should use indicators that can accomplish this.

Moving averages are one of the most popular indicators that traders use to help them identify a trend.

Specifically, they will use two moving averages (one slow and one fast) and wait until the fast one crosses over or under the slow one.

This is the basis for what’s known as a “moving average crossover” system.

In its simplest form, moving average crossovers are the fastest ways to identify new trends. It is also the easiest way to spot a new trend.

Of course, there are many other ways forex traders spot trends, but moving averages are one of the easiest to use.

Step 3: find indicators that help CONFIRM the trend.

Our second goal for our system is to have the ability to avoid whipsaws, meaning that we don’t want to be caught in a “false” trend.

The way we do this is by making sure that when we see a signal for a new trend, we can confirm it by using other indicators.

There are many good technical indicators for confirming trends like MACD, stochastic, and RSI.

As you become more familiar with various indicators, you will find ones that you prefer over others and can incorporate those into your system.

Step 4: define your risk

When developing your forex trading system, it is very important that you define how much you are willing to lose on each trade.

Not many people like to talk about losing, but in actuality, a good trader thinks about what he or she could potentially lose BEFORE thinking about how much he or she can win.

You have to decide how much room is enough to give your trade some breathing space, but at the same time, not risk too much on one trade.

You’ll learn more about money management in a later lesson. Money management plays a big role in how much you should risk in a single trade.

A trader should aways think about the potential loss BEFORE thinking about potential gain.

Step 5: define entries & exits

Once you define how much you are willing to lose on a trade, your next step is to find out where you will enter and exit a trade in order to get the most profit.

Entries

Some people like to enter as soon as all of their indicators match up and give a good signal, even if the candle hasn’t closed. Others like to wait until the close of the candle.

One of the forex traders here in babypips.Com, pip surfer, believes that it is best to wait until a candle closes before entering.

He has been in many situations where he will be in the middle of a candle and all of the indicators match up, only to find that by the close of the candle, the trade has totally reversed on him!

It’s all really just a matter of trading style. Some people are more aggressive than others and you will eventually find out what kind of trader you are.

For example, in the chart below, this trader’s entry was when the candle closed below the support line.

Exits

For exits, you have a few different options.

One way is to trail your stop, meaning that if the price moves in your favor by ‘X’ amount, you move your stop by ‘X’ amount.

Another way to exit is to have a set target, and exit when the price hits that target. How you calculate your target is up to you. For example, some traders choose support and resistance levels as their targets.

In the chart below, the exit is set at a specific price which is near the bottom of the descending channel.

Others just choose to go for the same amount of pips (fixed risk) on every trade.

However you decide to calculate your target, just make sure you stick with it. Never exit early no matter what happens.

Stick to your trading system!

After all, YOU developed it!

One more way you can exit is to have a set of criteria that, when met, would signal you to exit.

For example, you could make it a rule that if your indicators happen to reverse to a certain level, you would then exit out of the trade.

Step 6: write down your system rules and FOLLOW IT!

This is the most important step in creating your trading system. You MUST write your trading system rules down and ALWAYS follow it.

Discipline is one of the most important characteristics a trader must-have, so you must always remember to stick to your system!

No system will ever work for you if you don’t stick to the rules, so remember to be disciplined.

Oh yeah, did we mention you should ALWAYS stick to your rules?

How to test your forex trading system

The fastest way to test your system is to find a charting software package where you can go back in time and move the chart forward one candle at a time.

When you move your chart forward one candle at a time, you can follow your trading system rules and take your trades accordingly.

Record your trading record, and BE HONEST with yourself!

Record your wins, losses, average win, and average loss. If you are happy with your results then you can go on to the next stage of testing: trading live on a demo account.

Trade your new system live on a demo account for at least two months.

After two months of trading live on a demo account, you will see if your system can truly stand its ground in the market.

If you are still getting good results, then you can choose to trade your system live on a REAL account.

At this point, you should feel very confident with your forex trading system and feel comfortable taking trades with no hesitation.

Calculating profits and losses of your currency trades

Currency trading offers a challenging and profitable opportunity for well-educated investors. However, it is also a risky market, and traders must always remain alert to their positions—after all, the success or failure is measured in terms of the profits and losses (P&L) on their trades.

It is important for traders to have a clear understanding of their P&L because it directly affects the margin balance they have in their trading account. If prices move against you, your margin balance reduces, and you will have less money available for trading.

Realized and unrealized profit and loss

All your foreign exchange trades will be marked to market in real-time. The mark-to-market calculation shows the unrealized P&L in your trades. The term "unrealized," here, means that the trades are still open and can be closed by you any time.

The mark-to-market value is the value at which you can close your trade at that moment. If you have a long position, the mark-to-market calculation typically is the price at which you can sell. In the case of a short position, it is the price at which you can buy to close the position.

Until a position is closed, the P&L will remain unrealized. The profit or loss is realized (realized P&L) when you close out a trade position. In case of a profit, the margin balance is increased, and in case of a loss, it is decreased.

The total margin balance in your account will always be equal to the sum of the initial margin deposit, realized P&L and unrealized P&L. Since the unrealized P&L is marked to market, it keeps fluctuating, as the prices of your investments change constantly. Due to this, the margin balance also keeps changing constantly.

Calculating profit and loss

The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement.

Assume that you have a 100,000 GBP/USD position currently trading at 1.3147. If the prices move from GBP/USD 1.3147 to 1.3162, then they jumped 15 pips. For a 100,000 GBP/USD position, the 15-pips movement equates to $150 (100,000 x .0015).

To determine if it's a profit or loss, we need to know whether we were long or short for each trade.

Long position: in the case of a long position, if the prices move up, it will be a profit, and if the prices move down it will be a loss. In our earlier example, if the position is long GBP/USD, then it would be a $150 profit. Alternatively, if the prices had moved down from GBP/USD 1.3147 to 1.3127, then it will be a $200 loss (100,000 x -0.0020).

Short position: in the case of a short position, if the prices move up, it will be a loss, and if the prices move down it will be a profit. In the same example, if we had a short GBP/USD position and the prices moved up by 15 pips, it would be a loss of $150. If the prices moved down by 20 pips, it would be a $200 profit.

The following table summarizes the calculation of P&L:

100,000 GBP/USD	long position	short position
prices up 15 pips	profit $150	loss $150
prices down 20 pips	loss $200	profit $200

Another aspect of the P&L is the currency in which it is denominated. In our example, the P&L was denominated in dollars. However, this may not always be the case.

In our example, the GBP/USD is quoted in terms of the number of USD per GBP. GBP is the base currency and USD is the quote currency. At a rate of GBP/USD 1.3147, it costs USD 1.3147 to buy one GBP. So, if the price fluctuates, it will be a change in the dollar value. For a standard lot, each pip will be worth $10, and the profit and loss will be in USD. As a general rule, the P&L will be denominated in the quote currency, so if it's not in USD, you will have to convert it into USD for margin calculations.

Consider you have a 100,000 short position on USD/CHF. In this case, your P&L will be denominated in swiss francs. The current rate is roughly 0.9970. For a standard lot, each pip will be worth CHF 10. If the price has moved down by 10 pips to 0.9960, it will be a profit of CHF 100. To convert this P&L into USD, you will have to divide the P&L by the USD/CHF rate, i.E., CHF 100 ÷ 0.9960, which will be $100.4016.

Once we have the P&L values, these can easily be used to calculate the margin balance available in the trading account. Margin calculations are typically in USD.

The bottom line

You will not have to perform these calculations manually, because all brokerage accounts automatically calculate the P&L for all your trades. However, it is important that you understand these calculations, as you will have to calculate your P&L and margin requirements while structuring your trade—even before you actually enter the trade.

Depending on how much leverage your trading account offers, you can calculate the margin required to hold a position. For example, if you have a leverage of 100:1, you will require a margin of $1,000 to open a standard lot position of 100,000 USD/CHF. Having a clear understanding of how much money is at stake in each trade will help you manage your risk effectively.

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