Fx Quant > Mark-to-Market vs. Open/Close Profit/Loss Calculation

There are two methods for profit loss calculation:

1.) Mark-to-market profit/loss calculation - the futures industry standard. This methos is used by GFT Forex and futures brokerages. At end of day, the profit/loss, both from open and closed positions,  (in non-USD currencies) is coverted into USD and credited/debited to/from the trading account. At end of day the profit/loss can be considered closed and settled in USD, although there are open positions in GBPNZD, EURCAD etc. FX Quant's performace report is based on mark-to market profit/loss calculation

2.) Closed trade profit/loss calculation. This method is used by Oanda and virtually all other Forex dealing companies. The entire profit/loss from open position, not only that day profit/loss (in non-USD currency), will be calculated, converted into USD, and credited/debited to/from the trading account when the trade closes. As long as the trade is open, the profit/loss (in non-USD currency) floats, and the USD denominaed profit/loss also changes, based on the USD exchange rate. So, if your open trade profit is, say, 1000 EUR, and if it does not change day to day (if there is no new profit loss on that open position), your USD denominated profit/loss will yet be changing as the EURUSD rate changes. Basically, if USD strenghtens, the open profit/loss in account will be lower than mark-to-market profit/loss, and vice versa. If we were to close our positions at end of day and immediatelly re-open them, the profit/loss according to this method would be the same with the mark-to-market profit/loss.

Obviosly, these two calculation methods will yield different profit/loss figures, albeit not too much different. The peformance reports in our web site are calculated using the mark-to-market method. With different Forex dealing companies, you will see slightly different profit/loss, and this brief explanation explains the source of such discrepancies.