Calculating Profit/Loss & Risk
Basically, there are point values and cent values. The difficult part when first starting out is being able to get the decimal point placed correctly. However, all it takes is a little practiceso here are some examples.
The grains are one of the easiest to calculate so we'll start there first. In a regular size grain contract, every .01 cent move equals $50.00. This is because each contract controls 5,000 bushels and 5,000 divided by 100 cents equals $50.00. The mini grain contracts traded on the MidAm consist of 1,000 bushel lots so a .01 cent move there would equal $10.00. For example, lets suppose you went long one Wheat contract at 262.25 with a stop set at 252.00. You then liquidate or sell that contract at 288.50; the calculation for profit/loss would look like this:
288.50 Exit Price
-262.25 Entry Price
If this trade had not moved as you expected and you were stopped out, the calculation would have looked like this:
262.25 Entry Price
-252.00 Exit or Stop Loss Price
Now that you have a better understanding of how to calculate profit/loss in the grains lets move on to one of the markets that uses point values. We will use Heating Oil as an example. One HO contract controls 42,000 gallons and is quoted in $/gal. One point equals $4.20 and there are no mini-contracts available for trade on the Mid-Am. Lets say you sold or went short two contracts at 43.60 with an initial stop set at 46.00. And, you took 50% of your profits at 41.15. To calculate your risk and profits, see the example below.
43.60 Entry Price
-41.15 Exit Price/50% profits
x 420 Points (Notice: there was no decimal point used here)
If this trade had moved against your position, the calculation would have looked like this
46.00 Exit Price/Stop Loss
-43.60 Entry Price
x 2 Contracts
A great way to check your calculations when you are just getting started is to go to one of the free quote sites. Pick several markets and start calculating profit/loss by using the numbers listed in the % change column then multiply by the point or cent value for each particular market. Should you need a list of point values, two separate point value charts have been provided for you. To access the point values for full size contracts click Point Value Chart To access point values for the smaller Midam size contracts, click Midam Point Values This exercise is particularly helpful when you are first getting started and not sure where to place your decimal points. And remember, before you trade:
ALWAYS make capital preservation your #1 Priority.
ALWAYS figure your potential risk exposure before opening a position.
ALWAYS set stop limits on how much loss you can sustain before exiting.
NEVER exceed your stop loss amount to take on more risk.