FX · X5 · 7 min

Spot positions and P&L

Work out the profit or loss on a currency position, report it in pounds, and size a position from its stop-loss.

In the news: “Sterling fell 1% against the dollar”: what that costs a desk that owns pounds, in dollars and in pounds.

The essentials

Long and short: Buying £10m of GBP/USD at 1.2500 leaves you long £10m and short $12.5m: you gain if sterling rises. Desks name the position by the pair’s first currency: “long £10m of ”.
P&L comes in the terms currency: Spot P&L is the amount times the change in rate, paid in the pair’s second currency: long £10m from 1.2500 to 1.2560 makes $60,000. A sterling desk converts it at today’s rate: about £47,771.
Average rate: The size-weighted average of the rates dealt, and the position’s break-even: £5m bought at 1.2600 and £15m at 1.2680 average 1.2660.
Realised and unrealised: An open position is at today’s rate, so its P&L is unrealised and still moving. Closing the position realises the P&L and fixes it.
Which currency strengthened: A rising pair means a stronger first currency. The % move depends on where you stand: GBP/USD from 1.25 to 1.30 is +4.0% for sterling but −3.8% for the dollar.
Sizing from a stop: Size a position from its : a $50,000 loss limit with a stop 50 away allows £10m of cable. In a fast market a stop can fill beyond its level: .

Spot P&L

P&L (terms) = N × (S_exit − S_entry); P&L (base) = P&L (terms) ÷ S_now

N: position in the base currency, negative if short
S: the pair’s rate: terms currency per unit of base
S_now: the current rate, used to convert the P&L

All FX essentials on one page →

How it works

1. Long one currency, short another

Buy £10m of GBP/USD at 1.2500 and you own £10m and owe $12.5m. You are long sterling, so you gain if it rises, and short dollars. Desks name a position by the pair’s first currency: “long £10m of ”.

2. Profit comes in the second currency

Sell the £10m later at 1.2560 and you receive $12.56m, $60,000 more than the $12.5m you paid. P&L = amount × (exit rate − entry rate) = £10m × 0.0060. It comes out in dollars, the pair’s second currency.

3. Reporting it in pounds

A UK desk reports in sterling, so it converts: $60,000 ÷ 1.2560 = £47,771. Until it does, that dollar profit still moves with the exchange rate, so desks convert their P&L regularly.

4. The average rate

Add to a position and its break-even is the average rate, weighted by size. Buy £5m at 1.2600 and £15m at 1.2680: (5 × 1.2600 + 15 × 1.2680) ÷ 20 = 1.2660. Above that rate, the whole position is in profit.

5. Open and closed

While a position is open, its P&L is unrealised: at today’s rate, so it changes as the rate moves. Closing the position realises the P&L and fixes it.

6. Which currency got stronger

If GBP/USD rises, each pound buys more dollars: sterling strengthened. If USD/JPY falls from 150 to 148, each dollar buys fewer yen: the yen strengthened. A rising pair means a stronger first currency.

7. A % move depends on where you stand

GBP/USD from 1.2500 to 1.3000 is +4.0% for sterling (1.30 ÷ 1.25 − 1). For the dollar it is −3.8% (1.25 ÷ 1.30 − 1). Each is measured from a different starting point, which is why a currency that falls 20% needs to rise 25% to recover.

8. Sizing from a stop

A closes a position at a set level. Work backwards from it: with a $50,000 loss limit and a stop 50 pips away, size = $50,000 ÷ (50 × 0.0001) = £10m. In a fast market a stop can fill well beyond its level, which is .

Worked example

Your desk reports in sterling. You buy £5m of GBP/USD at 1.2600, then another £15m at 1.2680. Cable then falls to 1.2610.

Position: £5m + £15m = long £20m.
Average rate: (5 × 1.2600 + 15 × 1.2680) ÷ 20 = 1.2660.
Move: 1.2610 − 1.2660 = −0.0050, or 50 pips against you.
P&L in dollars: £20m × −0.0050 = −$100,000.
In sterling: −$100,000 ÷ 1.2610 = −£79,302.

A loss of $100,000, about £79,300.

Check yourself

8 quick questions on the explanation above.

Practice

New numbers every set. Misses and guesses go into your review deck.

In the interview

Answer out loud in under a minute, then compare.

You’re long sterling against the dollar and cable falls 50 pips. What’s your loss on £10m?
Why does a pair’s % change depend on which currency you measure from?
How would you set a stop-loss on a spot position?

Remember

P&L = N × (exit − entry), in the terms currency

Spot P&L arrives in the terms currency and has to be converted to report it; size a position from its stop, not the other way round.

Next · X6Forwards and covered interest parity