Profit and loss are two terms that are central to trading: the financial returns (or outgoings without returns) from any business enterprise or trade.
Profit and loss is calculated by taking the total revenue derived from an activity and taking away the total expenses. It looks like this:
Profit and loss = total revenue – total expenses
If the resulting figure is negative, you have made a loss. If it is a positive, you have made a profit.
Profit and loss is key to traders in several ways, including:
- The profit and loss derived from a position when it is closed dictates how much money has been made from the trade or how much it has ended up costing.
- A business’s profit and loss – often referred to as P/L – is a key factor in evaluating its fundamentals.