At TBanque, we make it easy for you to see how your investments are performing. Just check the “P/L” columns on your portfolio screen to see how much your holdings have gained or lost.
It is important to note that your TBanque investment account is USD based. This means that every trade you make and the profit or loss (“P/L”) of all positions you hold with us are valued in US dollars. When you make a deposit, funds are converted from your local currency to USD (subject to FX conversion charges).
Many assets such as crypto, CFDs, and US stocks are USD based, resulting in no further currency (FX) exposure (in regards to the way in which your P/L is expressed within your TBanque account). This is because your TBanque investment account is also USD based. Many assets on the TBanque platform are based on different (non-USD) currencies, however. For example, German stocks are based on Euros. In such cases, when you open a position, it (specifically the P/L) is exposed to the fluctuation in the FX rate between the US dollar and that currency.
With this in mind, let’s look at our formula for calculating P/L (note that the formula applies to all assets on the TBanque platform – CFDs, physical stocks/ETFs and physical crypto):
P/L = (Pricet1 – Pricet0) x N x FXt1
Where:
- Pricet0 = Price per unit upon opening the trade
- Pricet1 = Price per unit upon viewing or closing a position
- N = Number of units
- FXt1 = Foreign currency exchange rate between the asset’s base currency and USD at the time the position is first opened
Note, if the trade is in the opposite direction (in the case of selling short), the calculation is multiplied by -1.
It’s less complicated than it looks. Let’s dive in …
The P/L of USD-based Assets
Simply put, the P/L value of any USD based position is calculated by subtracting the opening price from the current price (or closing price) and multiplying by the number of units. Since these positions are USD based, there is no currency exchange involved in our calculation (i.e., the FX rate is “1” in the above formula). No matter where you are in the world, this holds true.
For open positions, this P/L number will fluctuate in line with the changing price of the asset. For closed positions, the P/L has been finalised and will no longer change.
For example:
- John in the UK deposits £10,000 (GBP) into his investment account. Assume the FX rate for GBP is 1.3 USD (including any FX conversion fees). After conversion, John has $13,000 in his account.
- John buys 2 shares of XYZ stock, which costs $240 ($120 per unit).
- In time, the price of XYZ increases to $130 per unit.
- Using our formula, the P/L of this position will be calculated as follows:
Pricet1 = $130
Pricet0 = $120
N = 2
FXt1 = 1
Therefore:
P/L = ($130-$120)*2*1 = $20.
The P/L of Non USD-Based Assets
As we explained earlier, when you open a position with a non-USD-based asset, you are exposed to the FX rate between the asset’s base currency and the US dollar. In this situation, the P/L calculation is identical to what we’ve previously reviewed, but with one key difference: the FX rate is no longer “1.”
The P/L of your non-USD based assets will change not only based on the asset price, but also the current FX rate. Even if the market is closed (out of hours), you may notice that the P/L of your non-USD-based asset continues to change. This is because, if the corresponding forex market is still open, the P/L will fluctuate according to those exchange rate movements.
When you close a non-USD-based position, your final P/L is calculated using the FX rate at that moment.
For example:
- John wants to buy 5 units of ABC, which is a UK stock, quoted on the London Stock Exchange and denominated in GBP.
- The price per unit is £8.80.
- The relevant FX rate (GBPUSD) is 1.3.
- The overall purchase amount in USD is therefore calculated as follows:
5 (units) x 8.80 (price per unit) x 1.3 (the GBPUSD FX rate) = $57.2
What if the price and FX rate now change after the position is open?
- The price per unit increases to £9.90
- The FX rate has gone down to 1.2.
- The P/L of this position will now be calculated as follows:
Pricet1 = 9.90 GBP
Pricet0 = 8.80 GBP
N = 5
FXt1 = 1.2
And therefore:
P/L = (£9.90 – £8.80) x 5 x 1.2 = $6.60
NOTE that if the FX rate had remained unchanged at 1.3 then the P/L would be:
P/L = (£9.90 – £8.80) x 5 x 1.3 = $7.15
Congratulations if you’ve made it this far. We hope you now have a firm grasp on how we calculate P/L. Happy investing!
