Cryptocurrency trading introduces unique dynamics to traditional financial concepts like Profit and Loss (PnL). Understanding PnL—including mark-to-market (MTM), realized PnL, and unrealized PnL—is critical for evaluating the performance of your crypto investments.
This guide breaks down PnL calculation methods, key terminology, and practical tools to streamline your trading strategy.
Understanding PnL in Cryptocurrency
PnL measures the change in value of your trading positions over time. It answers a fundamental question: Are your trades profitable or incurring losses?
Key PnL Terms
Mark-to-Market (MTM)
- The current market value of an asset.
Formula:
PnL = Current MTM Price − Previous MTM Price- Example: If Ethereum’s MTM price rises from $1,950 to $1,970, your PnL is +$20.
Future Value (FV)
- The projected value of an investment at a future date.
Formula:
Discount Factor = Present Value (PV) / Future Value (FV)- Example: Staking $1,000 in TRX at 4% APR yields $1,040 in a year.
Realized PnL
- Profit/loss from closed positions.
Formula:
Realized PnL = Exit Price − Entry Price- Example: Buying DOT at $70 and selling at $105 yields +$35.
Unrealized PnL
- Paper profit/loss from open positions.
Formula:
Unrealized PnL = Mark Price − Average Entry Price- Example: Holding ETH bought at $1,900 while its mark price is $1,600 results in −$300.
How to Calculate PnL: 7 Methods
1. FIFO (First-In, First-Out)
- Uses the oldest purchase price for calculations.
Example: Buying ETH at $1,100 (first) and $800 (later), then selling at $1,200:
PnL = $1,200 − $1,100 = **+$100**
2. LIFO (Last-In, First-Out)
- Uses the most recent purchase price.
Same example:
PnL = $1,200 − $800 = **+$400**
3. Weighted Average Cost
- Averages the cost of all units.
Example: Buying 1 BTC at $1,500 and 1 BTC at $2,000, then selling 1 BTC at $2,400:
Average Cost = ($1,500 + $2,000) / 2 = $1,750 PnL = $2,400 − $1,750 = **+$650**
4. Open/Closed Positions
- Compare buy (open) and sell (close) prices.
Example: Buying 10 DOT at $70 and selling at $100:
PnL = 10 × ($100 − $70) = **+$300**
5. Year-to-Date (YTD)
- Tracks annual performance.
Example: Holding ADA worth $1,000 in Jan 2022 and $1,600 in Jan 2023:
Unrealized PnL = **+$600**
6. Transaction-Based
- Calculates PnL per trade.
Example: Buying 1 ETH at $1,000 and selling at $1,500:
PnL = **+$500**
7. Percentage Profit
- Expresses PnL as a %.
Example: Buying BNB at $300 and selling at $390:
% Profit = (($390 − $300) / $300) × 100 = **30%**
👉 Explore advanced PnL strategies to optimize your crypto portfolio.
Calculating PnL for Perpetual Contracts
Perpetual contracts (no expiry) require:
- Realized PnL: From closed positions.
- Unrealized PnL: From open positions.
- Total PnL: Sum of realized + unrealized.
Note: Factor in trading fees and funding rates for accuracy.
Tools for PnL Tracking
- Automated Bots: Track PnL in real-time.
- Spreadsheets: Manual but customizable.
- Portfolio Trackers: Apps like CoinTracker or Koinly.
👉 Discover top PnL tools for seamless crypto management.
FAQs
1. What’s the difference between realized and unrealized PnL?
- Realized: Profit/loss from closed trades.
- Unrealized: Theoretical profit/loss from open trades.
2. Which PnL method is best for crypto taxes?
- FIFO/LIFO: Depends on regional tax laws. Consult a professional.
3. How do perpetual contracts affect PnL?
- They introduce funding rates, which can add costs to holding positions.
4. Can PnL be negative?
- Yes. Negative PnL indicates a loss.
5. Why is MTM important?
- It reflects the current value of your assets, not historical cost.
Mastering PnL empowers traders to make data-driven decisions, mitigate risks, and capitalize on market opportunities. Use the methods above to analyze your crypto performance with precision.