How to Calculate Crypto Profit And Loss?

UTC by John Caroline · 8 min read
How to Calculate Crypto Profit And Loss?
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The concept of crypto profit and loss is an easy one to grasp for those trading the asset. Whenever you sell or dispose of your crypto asset, you will be making either a profit or a loss. Here you will find all you need to know about crypto profit and loss calculation, with some useful tips on how to do that.

Like any regular business, cryptocurrency trading is usually motivated by a desire to make a gain or profit. However, based on the risks involved in business, there is also a likelihood of incurring a loss if the right decisions are not made due to misplaced or misinformed planning. The implication of such losses can be really telling, especially when the amount invested is significant. Thus, every person trading crypto necessarily has to know how to calculate profit and loss. Failing to do such calculations would amount to making a blind investment and pose trading difficulties as you will never know when the time is favorable to sell your assets and make money.

Crypto Profit and Loss Definition

The concept of crypto profit and loss is an easy one to grasp for those trading the asset. Whenever you sell or dispose of your crypto asset, you will be making either a profit or a loss. You make a profit on your crypto asset when you sell your crypto for more than the price at which you bought it, and you make a loss when you sell it for less than what it cost you to buy it.

Calculation of Crypto Profit and Loss

When calculating your profit in cryptocurrency trading, a good point to start is knowing and taking into account your breakeven price. This is important to help you draw proper contrast to determine whether a profit or loss is to be made.

Let’s use a simple illustration. Assuming you bought 1 Bitcoin (BTC) a month ago for $8,000. This becomes your breakeven price. Today, when you checked the market, you noticed the price of a Bitcoin has increased to $8,250. To know your potential profit, you simply subtract the breakeven price from the current market price.

Subtracting $8,000 from $8,250 will result in $250. This means that if you sell your Bitcoin today, you will be able to earn a profit of $250. You can then decide if you want to make the sale and earn this profit immediately, use it to buy another crypto asset, or leave it with the expectation of earning more on it.

This is only a basic illustration of how you can calculate your profit. The action becomes more complex where you have coins in multiple cryptocurrencies, when you trade regularly, and when you have varying price point targets for each cryptocurrency asset.

When calculating your profit, there are other metrics of profit and loss that should be borne in mind. So, besides calculating your total profit, you might also need to use some other metrics, depending on the targets you set. These metrics include:

  • average buy price and sell price,
  • realized profit (profit made on coins which you sold already,
  • unrealized profit (profit from calculations done with the current market price),
  • total profit (the sum of the realized and unrealized profit).

Using unrealized profit

Most times, traders in the crypto market become impatient, deciding to take profits and leave the market even when there’s an upward trend. In other cases, traders fail to sell their crypto assets when they should. Considering the volatility of the market and the contrasting possibilities, it is important to keep a constant watch on the market.

Say you bought BNB for $160 and it rose to $180. You would have already made a profit of $20. But you’re actually yet to sell your assets so you have not really earned the profit until you sell off the assets at such trending prices.

Similarly, the price of the BNB can drop a little or go below the price at which you bought it. For example, if you bought BNB for $160 and the current market price is $130, you lost $30. However, you’re not really at a loss, as long you don’t make sales of your assets.

Multiplying to get the percentage profit

A larger number of traders in the crypto market prefer using the percentage approach to calculate their profit and loss. To achieve this, you can calculate your crypto profit by multiplying by the percentage increase in the value of your crypto asset.

To do so, you have to multiply the price at which you bought the crypto (breakeven price or entry price) by the corresponding percentage expression. For instance, if you bought BNB at $2 entry price, and you only want to make 10% of the trade and sell your assets, you would have to multiply your entry price by the corresponding percentage profit of 10%. Thus, it would be $2 your entry price multiplied by 1.1 to get your exit price. The value of your assets would then be $2.2, less the entry price, to arrive at a profit of $0.2.

The rule of thumb is to add the number 1 every time you want to multiply by a hundred.

Using a spreadsheet

One effective way to calculate your profit is by creating a spreadsheet in Microsoft Excel. With the spreadsheet created, you can enter your entry price, the current market price, the number of coins, and the appropriate formula to determine your profit.

The disadvantage of using a spreadsheet is the manual input required for all the data you would use to calculate your profit. Considering the daily change in prices in the market, you need to be apt in updating prices. It will become more difficult and tasking when you have different cryptocurrencies. Hence, the spreadsheet method could be time-consuming and the manual input of data could lead to input errors. If however, you’re only starting out with a few coins, then the spreadsheet method is a good way to calculate your profit.

Crypto trading calculators

The easiest and more effective way to calculate your profit when trading cryptocurrencies is the use of crypto trading calculators which are readily available online. So, if you find the use of a spreadsheet to be too tasking and complicated, you can easily search out a trading calculator that works best for you.

A good option has been the use of the Binance profit calculator, also known as the Binance Futures Calculator. You can use this calculator to determine your profits and loss, returns, and margins. It can also be used to set a price point target that you plan to attain before selling your

There is also the Easy Bitcoin calculator. You can use it to calculate your profits, but it is limited to Bitcoin.

Another good option is the Altrady calculator which not only aids the calculation of your profit but also shows your latest trade position and the estimate of your crypto assets when they are converted to US dollars or other currencies.

The great thing about the crypto trading calculators is that they are not just convenient, most of them are actually available with a period of a free trial or for a cost-friendly amount.

Importance of Effective Crypto Profit and Loss Calculation

You’re taught in the cryptocurrency market to “buy low and sell high.” In other words, you have to keep a regular watch on the market and the price trends of each crypto asset, and when you notice the price is low, you strike. Cryptocurrencies that have an upward trend are eventually going to rise in price, and that would be the best time for you to sell yours and make a good gain or profit.

But what is really the main deal of calculating profit? Why is it so important? The points have briefly been made at the outset of this piece, but here’s a detailed explanation for better insight and clarity.

You spend your personal money anytime you buy a cryptocurrency. When you decide later to dispose of the asset at a price higher than what you paid to buy it, you make a profit. If you fail to do a pre-calculation of the profit to accrue from your intended sale, you might end up selling the asset at a lower price than you actually should and thus incur a loss.

In addition, a mistake that is common to both new and old traders in some cases is waiting too long after buying a coin before selling or disposing of it. The truth is, unless you’re the strategy of leaving your crypto asset for a few years to earn profits, it could result in a major loss if you wait for too long.

It is actually good and profitable to buy low and sell high if you implement the strategy with a high measure of discipline. Otherwise, you are likely going to become tempted easily by an upward trend of a particular coin and wait for it to keep going higher. The risk involved here is that the price of such coins can suddenly drop and this would lead you to a loss rather than making a profit.

Setting a really high point of sales price risks the possibility of a sudden drop in the market price before you get the chance to sell.

This forms the essence or importance of calculating profit and loss on your cryptocurrency. It’s a much better strategy to stick to a plan and a price point that is realistic than simply adopting the approach of waiting for the price to go very high before moving to sell your crypto asset.

Bottom Line

Being able to calculate your profit in trading cryptocurrency is one of the important skills you need to become successful as a trader. You can make use of a personal spreadsheet or a crypto trading calculator. The important thing is you should be aware of how much profit you stand to make to determine whether to sell or hold back until a more favorable time.

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FAQ

What is crypto profit?

Crypto profit is the extra amount gained on the initial amount you paid to buy a cryptocurrency. Or simply put, the excess of the current market price over the breakeven or entry price of your cryptocurrency.

What are the most popular methods of calculating profit and loss in crypto trading?

The most popular methods used to calculate profit and loss in crypto trading are the use of personal spreadsheets and the use of crypto trading calculators.

Why is calculating crypto profit and loss important?

Calculating crypto profit and loss is important to enable you to determine whether or not to sell your crypto asset under a particular market trend or situation.

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