Discussion of article "Market math: profit, loss and costs" - page 2

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There is another flaw with your approach: you use the sell rate of the conversion pair (Bid or 1/Ask if indirect) for all trade types, whether buy or sell.


This is not correct. The rate used for conversion of profits/losses from profit currency -> account currency, must match the trade type on the traded pair.

It is a simple rule: The trade type on the conversion pair is the same as that of the traded pair.

  • Conversion of buy profit is done by longing the cross conversion pair (multiply by Ask, or 1/Bid if indirect).
  • Conversion of sell profit is done by shorting the cross conversion pair (multiply by Bid, or 1/Ask if indirect).

The choice of price type (BID/ASK) of the profit/account conversion pair depends to two things: (a) the type of the order (b) position of account currency in the conversion pair (first or second).

 
I've learnt.
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