Exact Profit and Loss for Long and Short

Second Officer · SO03: Money Maths: Profit, Size and Margin · About 25 minutes

Safety rule: Start with the adverse outcome. Use executed prices, not the prettier numbers on a chart.

Your mission today

By the end you can calculate gross and net profit or loss for a long or short trade from actual deal prices.

Before you start

Your SO02.2 Bid/Ask trade sheet, your SO01.2 contract specification, and a calculator. All prices and account balances below are imaginary teaching figures, not actual market data.

1. Understand the problem

Think of a receipt, not a chart

A shop owner knows the final result only after comparing what they paid with what they received. Trading works the same way. A long position gains when the actual exit price is higher than the actual entry price. A short position gains when the exit price is lower. That does not mean either direction is more likely to win.

The gross price result comes from signed price movement multiplied by contract units. The net result also includes commission, financing and applicable conversion charges. Keep these as separate lines. A cash deposit, withdrawal or change in account equity is not the same thing as a realised trading profit.

2. Worked example: show the loss first

Imagine a EURUSD derivative where one full lot represents EUR 100,000. The example uses 0.20 lot, meaning EUR 20,000 of contract exposure. A long buys at an executed Ask of 1.1002 and exits at an executed Bid of 1.0992.

Loss first: (1.0992 − 1.1002) USD/EUR × EUR 20,000 = −$20 gross. If a separate $1 round-trip commission applies, the result is −$21 net, excluding other charges.

For a favourable comparison, an exit at Bid 1.1012 gives (1.1012 − 1.1002) × 20,000 = +$20 gross and +$19 after the same $1 commission. Both prices already include the applicable quote sides. Do not deduct an imaginary spread again.

Original Black Box Journey diagram. Imaginary training figures; not a real historical trade.

3. Apply the idea

A short reverses the sign

Imagine the same EUR 20,000 exposure sold at an executed Bid of 1.1000, then closed by buying at Ask 1.1010. Since a short benefits when the exit is lower, the ten-pip increase creates −$20 gross, before costs.

If the close were 1.0990 instead, the short would gain +$20 gross. Write direction, entry side, exit side and contract units on the worksheet before calculating. A positive price change is not always a positive account result.

For other instruments, use their actual tick value or contract multiplier. If the profit currency differs from the account currency, add a conversion line with the applicable rate.

4. Test the limitations

Reconcile the complete trading record

Make a ledger with seven entries: direction, filled entry price, filled exit price, volume, contract units, gross price result, and separate costs. Compare the total with the platform history. A commission may be posted on entry, on exit, or both. An overnight swap may be a credit or a debit. Read the actual deal records rather than using a blanket assumption.

Never hide a rejected order, a partial fill or a trade closed in several deals. Reconcile each execution and its volume. If the statement does not match your worksheet, label the difference UNRESOLVED and investigate. A neat spreadsheet is not evidence if the underlying fills are wrong.

5. Record a defensible decision

Check a different account currency

Suppose your net result is an imaginary −$21 USD and a teaching conversion rate is RM4.40 per USD. The corresponding amount is −RM92.40, before conversion fees. Use the rate that actually applies to the account, which can change with time and broker rules.

This process builds a habit: calculate the loss correctly before celebrating a profit. It also prepares you for position sizing. The result you want never changes the contract size you have.

Common mistake

Recording +$20 gross as +$20 net hides commission and financing. Using a midpoint chart price also hides the effect of executable Bid/Ask quotes. Recalculate from history, with each cost recorded once.

Plain-English glossary

• Long: A position benefiting from a higher exit price.
• Short: A position benefiting from a lower exit price.
• Gross P/L: Price gain or loss before separately recorded charges.
• Net P/L: Actual result after applicable trading costs.
• Contract multiplier: Units represented by a stated trading volume.

Try it yourself

Reconcile ten demo trades, including both directions and at least one partial close. Show every fill, contract size, commission, financing and currency conversion. Save your signed ledger and record any unresolved difference instead of forcing a match. Keep the original inputs and your final result together in your student journal.

What you can now do

• Calculate gross P/L with signed contract units.
• Reconcile net costs without double-counting.
• Convert the final result to account currency.

Next lesson

SO03.2 · Position Size Before the Click. Read it after completing the worksheet above, not just after reading the headings.