A point is the smallest measurement of a financial instrument's price change. For example, if the price of an instrument changes from 1.30000 to 1.30001, it gains 1 point. Calculating the value of one point is essential for traders to understand the profit or loss potential of their trades.
Formula for Calculating One Point Value
The calculation of one point value is based on the "Profit calculation mode." To determine the appropriate mode, open your MT4/5 terminal, right-click on the desired trading instrument, choose Specifications, and find the required field.
Calculation for LONG (Buy) Orders
- Forex: Point Value = (Close Price − Open Price) * Contract Size * Lots.
- CFD: Point Value = (Close Price − Open Price) * Contract Size * Lots.
Calculation for SHORT (Sell) Orders
- Forex: Point Value = (Open Price − Close Price) * Contract Size * Lots.
- CFD: Point Value = (Open Price − Close Price) * Contract Size * Lots.
When you calculate the point value, you will receive the result in the profit (quote) currency. You must then convert it to the account currency to get the value as seen in the trading terminal.
Example Calculation
- Instrument: XAUUSD.s (Gold).
- Volume: 1.00 lot.
- Account Type: Pro.
- Account Currency: USD.
Formula: Point Value = (Close Price − Open Price) × Contract Size × Lots
For this example:
- Close Price: 2,274.81.
- Open Price: 2,274.80.
- Contract Size: 100.
- Lots: 1.00.
Calculation
- Point Value = (2,274.81 − 2,274.80) * 100 * 1.
- Point Value = 0.01 * 100 * 1.
- Point Value = 1 USD.
The one-point value for XAUUSD.s in this example is 1 USD.
Understanding how to calculate the value of one point helps traders manage their risk and potential returns effectively. Always ensure to check the specific "Profit calculation mode" for each trading instrument in your MT4/5 terminal to make accurate calculations.