Where trade profit comes from

Most exchange dealers, and quite a few accountants, treat two different numbers as one. The first is the edge against the board: how your rate compared with today's price. The second is real trade profit: what remained once you account for what you paid for that currency.

They are not the same number and do not always point the same way. Treat them as one and at month's end you will be looking at profit that does not exist, and possibly distributing it.

Here is where real profit comes from, how Nexto keeps your purchase average, why a same-moment buy-and-sell is different, and the setting that measures profit when neither side of a trade is your reference currency.

What you will learn

Edge vs board against real trade profit, and when the two disagree
How the weighted purchase average is built, and why sales are measured against it
Where to read your position: how much you hold and at what average
How to record a deal, one buy and one sell at the same moment
What the three anchor methods do, and why you pick one and keep it fixed
Why a stale rate board makes every profit figure imaginary

Two numbers, not one

The edge against the board is the number we met in buying and selling currency: your rate minus today's board rate, times the amount. It tells you whether you sold well against today's price. But it is not profit, because it has nothing to do with what you paid for that currency.

Real profit comes from the price you paid. If the dollar you sold today at 228,000 Iranian Toman was one you bought last month at 218,000, the real profit on each dollar is 10,000 Toman — not the 1,400 the board comparison shows.

The weighted purchase average

You did not buy dollars once at one price; you bought ten times at ten prices. So which is "your" purchase price? Nexto takes the weighted average of everything you hold, in proportion to the amounts: 100 Dollars bought at 200,000 Toman and 300 Dollars bought at 220,000 give a weighted average of 215,000 Toman, not the midpoint of the two rates.

Nexto keeps this figure for every currency and calls it the position: how much you hold, and at what average. Every buy shifts the average; every sell is measured against it. You maintain none of it by hand.

Nexto positions report showing holdings per currency with the weighted purchase average — The position page: how much of each currency you hold and the weighted average you bought it at

Seeing real profit on a trade

Pick a currency you actually hold

The reference currency has no position, because everything is measured against it. So to see real profit, sell a currency you do hold that is not your reference currency: 10,000 UAE Dirham for Iranian Toman, sold to Persepolis Exchange.

Read both numbers in the summary

The amount is 10,000 and the rate is 61,400 Toman. Both figures now sit side by side in the summary panel, and their direction is not even the same: against today's board this sale is slightly worse than the market, yet the trade profit is positive, because the dirhams were bought at a lower average.

Nexto trade form summary panel showing edge vs board and trade profit side by side — Both numbers at once: the edge against today's board, and the real profit measured against your purchase average

Record it and open the entries

Add a description and record. On the voucher page, expand the entries and a row appears that was not there before: trade profit, the same 6 Canadian Dollars the summary panel showed. That row is what gets summed at month's end in the profit-and-loss report.

A buy can create profit too

If you had earlier sold a currency you did not hold — gone short, as the market calls it — and now buy to cover, the profit or loss is realised at the moment of that buy. Nexto works this out on its own.

The deal: buying and selling in the same moment

Every dealer meets this several times a day. You buy 10,000 US Dollars from Bosphorus FX at 226,300 Toman and, at that very moment, sell them to Persepolis Exchange at 226,600 Toman. The dollars never reach your holdings — you take with one hand and give with the other.

A deal's profit is the profit of those two trades, not a weighted average, because the dollars never entered your position to be measured against anything. The sell rate minus the buy rate, 300 Toman, times 10,000 Dollars, is 3,000,000 Toman, less fees, commission and costs.

Why it has its own form

Record a deal as two ordinary trades and the dollars enter your average and leave it again, the profit is smeared across two vouchers, and you can no longer say what this deal earned. The double form also creates two vouchers, but ties them together and keeps the deal's profit separate.

Filling in the double form

Enter the currency and amount, 10,000 US Dollars against Iranian Toman; the seller, Bosphorus FX, at a buy rate of 226,300; the buyer, Persepolis Exchange, at a sell price of 226,600. The profit-on-this-deal panel recomputes live as you fill it in.

Nexto double trade form with seller, buyer, both rates and a live deal profit panel — The double form: one buy, one sell, and the profit of this deal computed live as you type

The direct settlement checkbox means the two sides settle with each other and the money does not pass through your hands. Fee, brokers' commission and costs come off this deal's profit and each has its own place on the form. Book the deal and Nexto creates two tied vouchers. Deals also get their own report: one row per deal, with outgoing, incoming, commission, cost and net profit.

The three anchor methods

Sell UAE Dirham and receive Turkish Lira and neither side is a Canadian Dollar. Profit still has to be computed in Canadian Dollars, so Nexto must give both sides a Canadian-Dollar value. That mechanism is the anchor, set in the settings. Take selling 10,000 UAE Dirham and receiving 133,000 Turkish Lira.

Nexto settings page with the cross-rate anchor method options — The anchor setting: how Nexto gives a reference-currency value to a trade with no reference currency in it

Method one, board sell. The dirhams you gave are converted at the board's dirham sell rate: 3,786 Canadian Dollars. The lira you received take no rate from the board; they enter your position at that same 3,786. Only the dirham side's profit is realised today, against its purchase average; any profit or loss on the lira side waits until you sell the lira or revalue at month's end.

Method two, board mid. The same, but using the mid of the board's buy and sell rates — a little more conservative.

Method three, both sides at mid. The dirham at its own board mid, the lira at its own board mid. If the Canadian-Dollar value of the lira you received exceeds that of the dirhams you gave, the gap is booked right then as dealer profit. More precise, but it needs a live board for both currencies, which is why it only turns on with an API rate.

None of the three is wrong. Pick one and do not change it, or profits from one month cannot be compared with another.

Everything leans on the board

Both of these profits lean on the rate board: edge vs board directly, trade profit indirectly, because the purchase average is built from trades whose rates were measured against that day's board. A stale board means imaginary profit — and imaginary profit means distributing profit that does not exist.

It is all summed at month's end in the profit-and-loss report, by currency pair — a report that opens only for a user with permission to see profit.

Tips and warnings

Do not quote the edge-vs-board figure as profit. It says whether you sold well today, not what you paid.
The reference currency has no position and produces no trade profit — it is the yardstick.
A deal belongs on the double form; two separate trades give the money and none of the information.
Fee, brokers' commission and costs belong in their fields on the deal form.
Choose an anchor method once and leave it alone; method three only turns on with an API rate.
Update the board every day. Every profit number inherits its errors.

Where to go next

The previous episode is cash trades, the till and cashier orders; next comes transfers, receipts and payments. Since everything here leans on the board, re-read the rate board and its guards; FX revaluation and closing the period settles an unrealised lira position, and where is the profit? puts trade profit beside the other sources.

FAQ

What is the difference between edge vs board and trade profit?

Edge vs board is your rate minus today's board rate, times the amount: whether you sold well against today's price. Trade profit is measured against the weighted average you actually paid. On one trade the two can point in opposite directions.

How does Nexto calculate my purchase price for a currency?

As a weighted average of everything you hold, in proportion to the amounts bought at each price. For example, 100 Dollars at 200,000 Toman and 300 Dollars at 220,000 give an average of 215,000 Toman.

Why does a trade in my reference currency show no trade profit?

Because the reference currency has no position — it is the yardstick every other currency is measured against, so there is no purchase average to compare a sale with.

What is a deal and why does it need the double form?

A deal is a buy and a sell of the same currency at the same moment, to two different parties. The double form creates two vouchers but ties them together, so the deal's profit stays separate instead of being smeared across your purchase average and two unrelated vouchers.

What is the anchor setting for?

For trades where neither side is your reference currency, such as selling UAE Dirham for Turkish Lira. It tells Nexto how to value both sides in the reference currency: board sell, board mid, or both sides at mid.