Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Profit and loss definition

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.

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