The concept of crypto profit and loss is quite easy to grasp for those people trading the asset. Whenever you dispose of or sell your crypto asset, you might be making a profit or a loss.
Like any normal business, crypto trading is normally motivated by a desire to make a significant gain or profit. Nonetheless, based on the risks that are involved in the business, there is also a possibility of incurring a loss in case the right decision is not made as a result of misinformed or misplaced planning.
The consequence of such losses can be quite conspicuous, mostly when the amount invested is considerable. Therefore, each person trading cryptocurrency essentially needs to know how to calculate losses and profits. Failing to do these calculations would result in making a blind investment and pose trading challenges since you will not know when the time is good for selling assets and making money.
Notably, the concept of crypto profit and loss is easy to understand for the people trading the asset. Whenever you dispose of or sell off your crypto asset, you make a profit or a loss. When you sell your crypto for more than the price at which you bought it, you make a profit. On the other hand, you make a loss when you sell it for less than what you used to buy it.
Calculation Of Crypto Profit And Loss
When calculating profit in crypto trading, a great point to start is knowing and taking into consideration your breakeven price. That is quite important to help you define proper contrast to determine whether a profit or loss is to be recorded.
Let us take into consideration a simple illustration. Assuming you acquired 1 Bitcoin a month ago for $32,000, it becomes your breakeven price. Today, when you checked the market data and realized that the price of a Bitcoin has increased to $33,000, you can know your potential profit by subtracting the breakeven price from the current market value.
Subtracting $32,000 from $33,000 will result in $1,000. It means that if you decide to sell your bitcoin now, you can earn a profit of $1,000. Then, you may decide whether you want to make the sale and earn the profit instantly, and use it to buy another crypto asset, or leave it hoping to earn more from your BTC.
That is just a basic illustration of the way you can calculate a crypto profit. This action becomes more complicated when you have coins in many cryptos, whenever you trade regularly, and when you have different price point targets for every crypto asset.
Whenever you are calculating your crypto profit, there are several other metrics of profit and loss that need to be taken into consideration. Thus, apart from calculating your cumulative profit, you may also have to use some other metrics, subject to the targets that you set. The metrics include:
- Realized profit, is a profit made on coins that you have already sold
- Average sell price and buy price
- Total profit, which is the sum of the realized and unrealized profit
- Unrealized profit, is the profit from the calculations done using the current market price.
Using Unrealized Profit
Many times, crypto traders become impatient, deciding to take the profits and leave the market even when there is an upside trend. In the other cases, traders fail to sell their cryptocurrency assets when they should. Taking into context the volatility of the market and the contrasting potentials, it is crucial to maintain a constant watch and review of the market.
Say you acquire BNB for $140 and it rose to $170. You would have already made a profit of $30. But you are yet to sell the assets, which means that you have not earned the profit until you sell off the assets at these prices.
Equally, the BNB price can plunge slightly or go below the price at which you purchased it. For instance, if you purchased BNB for $160 and the current price in the market is $140, you lost $30. Nonetheless, you are not at an actual loss, provided that you do not make sales of the assets.
Multiplying To Get Percentage Profit
A bigger number of traders in the crypto space prefer using the percentage approach to calculate their crypto profit and loss. To achieve all that, you can calculate crypto profits by multiplying the percentage increase in the value of your crypto asset.
To do that, you need to multiply the price at which you purchase the crypto (entry price or breakeven price) by the corresponding percentage expression. For example, if you acquire BNB at a $2 entry price, and you just want to make 10% of the trade and then sell your assets, you would need to multiply your entry price by the corresponding percentage profit of the same 10%.
Therefore, it would be $2 the 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 each time you want to multiply by a hundred.
Use A Spreadsheet
One notable way of calculating your profit is by developing a spreadsheet in Microsoft Excel. With the spreadsheet developed, you can enter the entry price, the current market price, the total number of coins, and the suitable formula to determine the profit.
The shortcoming of using a spreadsheet is the manual input needed for all the data that you would use in calculating your profit. Taking into context the daily change in prices in the market, you have to be apt in updating the prices. It becomes more challenging and cumbersome when you have different cryptos.
Therefore, the spreadsheet strategy is time-consuming and the manual input of data may result in input errors. But, if you are starting out with a few coins, the spreadsheet strategy is an ideal method of calculating crypto profit and loss.
Crypto Trading Calculators
The effective and most straightforward method of calculating profit when trading cryptos is the use of cryptocurrency trading calculators that are readily available online. Therefore, in case you find that using a spreadsheet is too challenging and cumbersome, you can readily look for a trading calculator that works perfectly for you.
A great option has been the use of the Binance profit calculator, which is also known as the Binance Futures Calculator. You can use the calculator to determine your profits and loss, margins, and returns. It can also be used to set a price point target that you want to attain before selling your cryptos.
Notably, there is also the Easy Bitcoin Calculator that you can use to calculate your profits and losses. However, it is limited to Bitcoin.
Another great option is the Altrady Calculator which helps in calculating crypto profit and loss, while also showing the latest trade position and the approximate of your cryptos when they are changed to dollars and other currencies
An incredible thing about the crypto trading calculators is that they are not only convenient, but a majority of them are also available with a session of a free trial or for an affordable price.
Benefits Of Effective Crypto Profit And Loss Calculation
You are advised in the crypto market to “buy low and sell high.” In other words, you need to keep a regular watch on the market and the price trends of every crypto asset, and whenever you see the price is low, you strike. Cryptos that have an upside trend is eventually going to gain value, and that would be a great time for you to sell yours and make a significant gain or profit.
Nonetheless, what is the main deal of calculating crypto profit and loss? Why is it very important? The points have been highlighted previously in this piece. You spend your money anytime you purchase crypto. Whenever you decide later to dispose of the asset at a price higher than what you paid to acquire it, you make a profit.
In case you fail to do a pre-calculation of the profit to accrue from the intended sale, you may end up selling the asset at a lower price than you really should and therefore incur a loss.
Furthermore, a mistake that is quite common to new and old traders in some instances is waiting too long after purchasing a coin before selling or disposing of it. Truthfully, unless you are using the strategy of leaving your cryptocurrency asset for a few years to earn some profits, it might eventually result in a massive loss in case you wait for too long.
It is always great and profitable to buy low and sell high in case you implement the method with a strict measure of discipline. Otherwise, you might be tempted by an upside trend of a specific coin and wait for it to keep moving higher. The risk here is that the price of these coins can drop abruptly resulting in a loss instead of a profit.
Setting a considerably high point of sales price risks the probability of an unexpected plunge in the market price before you get the opportunity to sell. That forms the importance or essence of calculating crypto profit and loss. It is advisable to stick to a plan and a price point that is more practical than just adopting the method of waiting for the price to surge significantly higher before selling your assets.
Managing to calculate crypto profit and loss is an important skill that you need to have to succeed as a trader in this highly volatile market. You can utilize a personal spreadsheet or a cryptocurrency trading calculator.
The vital thing that you need to be aware of is the amount of profit you stand to gain to determine whether to hold until a favorable time or sell your assets.