Here is one that i’ve been looking for answers with no success for weeks.
I am new to Forex and have been doing some demo trades for about 2 months at which point surprisingly i am profitable. I did 15 trades. I’ve been learning to swing trade US stocks for 3 years and i am not losing anymore. Next step is to be profitable consistently even slightly.
My question is how do we calculate the profit in the canadian domestic account on a cross rate trade. Hopefully i will explain myself well!
Here is the example for this:
Buy 14680 CHF of EURCHF @ 1.1100
and say it reaches 1.1150 and i sell it.
So then i get 50 pips, right? Then i’d have to convert this to canadian.
What rate would i use? The CDNCHF at the exact time when i sold it?
If your broker is in Canada and you opened the account with CDN, then your profit is in CDN.
Remember that when we say we are instructing the broker to “buy” EUR/CHF, he isn’t really going to take CHF’s from the safe and sell them and come back from the bank with EUR’s in an envelope. You have really instructed him to bet that EUR will rise against the CHF. If you’re right, the increase in the exchange rate is a reflection of the increase in value of EUR’s if you had actually bought some, so as the benefits of “buying” are the same as the benefits of ownership, we say “buy” when we mean bet on a price rise. Brokers (like most people) get very touchy about using the word “bet”.
I understand that. Nevertheless the pips you gain or lose are expressed in the quote currency, isn’t it? So that if you gain 50 pips, it is 50 CHF. Then you’d have to convert it to CAD using the CHFCAD rate at the time the trade is closed. BTW, i am doing my demo trades with Oanda. I’m saying that since i’ve been reading many articles to clear my doubts. Unfortunately, when they explain how it works, they make a transactions where the quoted currency is the same as the currency of the account which does not explain how it works when you use a cross.
Maybe i am unclear or i am missing something. I am trying to figure how to do clean records so that when i go see my accountant at the end of the year, he doesn’t have to figure all out by himself.
I am an accountant by training but never studied this while in university.
No. The pips you gain are in the currency of the account, not the currency of the targeted instrument. So you might risk 100CAD from a CAD account in Canada on a price expressed in CHF or USD or JPY or even in groats - if that share price gains 10%, you gain 10CAD. You don’t have to convert anything to anything.
I’m having a similar discussion on another thread. Surely if you start with X amount in capital and end with Y amount in capital in your account that’s the profits made (hopefully) and that’s all that needs to be reported. And in this case for instance: even if the account is denominated in USD and has to be brought back in CAD then why should any additional profit or loss on exchange make any difference. Unless (and I’ve never heard of this but anyway) each trade and details of each instrument traded has to be disclosed. But even then: a detailed statement from the broker should suffice. Isn’t going to change the bottom line or the taxable income amount.
Yes indeed Dale. But the industry is at fault here by letting the impression spread that when we buy EUR/USD we’re buying Euro’s, like when we go on holiday to Europe, and we’re paying for them in US dollars. when of course neither we nor the broker actually acquires any Euro’s nor does anyone go and get a package of dollars and take them to a bureau de change and swap them for euro’s.
And all this to avoid the reality which is that they are bookies and we are gambling.
That is what i am thinking ( that each trade and details of each instrument traded has to be disclosed). Think being audited, they will sure go through the books. 2nd you need some details to get your statistics, %win,%loss, expectancy, P&L %R, trade reviews etc.
In stocks, i have everything. At year end i take the Exchange Rate on the settlement date for both buy and sell and there i get my profits to report.