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What it takes to calculate your crypto trading profit and loss is a mastery of the numbers. Moreover, you must always keep in mind that your primary goal for trading crypto is to make profits.
Calculating how much you made (profits) and how much you lost (loss) helps you to balance your portfolio. But how do you do these calculations?
Calculating profit and loss is usually one of the hardest things to do for traders. It doesn’t have to be hard, though, because we have sorted it all out. Just read and implement the information here for the best results.
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Before we continue, let us mention this: Thousands of cryptocurrency traders lose more money than they make.
This could be because of several factors, including trading coins with no real use case and not taking profits on time.
The rule of thumb is never to sell at a loss. So keep this in mind as you start implementing crypto trading profit and loss strategies.
There Are Different Ways to Calculate Your Profit and Loss in Crypto
You can start calculating the amount you earned and the amount you lost in crypto trading using the strategies below:
This is one of the simplest ways to calculate your profit and loss in crypto. All you have to do is to remove/subtract the amount you sold the crypto for from the amount you bought it for.
Let us cite an example using Bitcoin (BTC). Let us assume that Bitcoin is currently trading at $10,000. You bought BTC with $10,000 and sold when it spiked to $15,000.
In this case, you want to remove the cost price (the price you bought it at) from the selling price. That is, you will remove the cost price of $10,000 from the selling price of $15,000. The remainder ($5,000) is your profit.
You can also use the same model to calculate your loss. In this instance, let us say you bought Bitcoin for $10,000. However, it tanked to $8,000 and you were afraid the price would drop even more. So you sold for that price. This means that you lost $2,000.
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Sometimes, cryptocurrency traders are anxious to take profits and get out of the market because it is volatile.
Keeping a constant eye on the market helps the traders to know first-hand if they are making profits or losing on their trades. However, obsessing over the constant variations in the market can keep a trader from seeing the whole picture.
Assuming you bought Ethereum (ETH) for $2,000, just keep a watchful eye on the market. If the price of ETH spikes to $2,200, it means you have made $200 already.
The only difference between this and the subtraction model is that you have not sold yet.
However, the price of Ethereum (ETH) can drop a bit or even tank once your order is filled. This happens most of the time when the buy orders are higher than the sell orders. For example, if you bought ETH for $2,000 and it drops to $1,800 after you place your sell order, this means you lost $200. This change will affect your profit and loss calculation after your sale.
A majority of profits and losses made on cryptocurrency trading are expressed in percentages. Here is how to go about calculating that:
You can calculate your profits in cryptocurrency trading by multiplying for the percentage increase.
Here is how to do that:
Multiply the price you bought the crypto at(entry price) by the corresponding percentage expression. The percentage profits between 10% and 50% are expressed this way:
- 1.1 for 10%
- 1.2 for 20%
- 1.3 for 30%
- 1.4 for 40%
- 1.5 for 50%
Let’s assume that you bought Cardano (ADA) at the entry price of $2. You want to make just 10% of the trade and exit the market. What you will do is to multiply your entry price (the price you bought your ADA at) by the corresponding percentage profit for 10%. That is, $2 (entry price) multiplied by (x) 1.1 (10%).
That gives you $2.2, where $2 is your capital and $0.2 is the 10% profit you made.
You can also do something similar if you want to take 50% as profit from the trade. In this case, the calculation will be $2 x 1.5 = $3. Remove your capital of $2. What you have left is 50% of the capital, which is $1.
However, you can calculate for 100% gain/profit by doing this: $2 x 2 = $4.
The rule of thumb is to add the number “1” every time you want to multiply by a hundred.
You can organize everything about the profits you made and the losses you encountered from crypto trading by using a spreadsheet.
You can organize it all into sections, such as:
- The names of the coins you traded
- The units traded
- The amount spent to buy the coins
- How much you sold the coins for
- The date you traded them
At the end of the exercise, check the entry prices (the amounts you bought the coins for), and the selling prices. It will be clear if you gained or lost money.
5. Consider Using Cryptocurrency Calculators to Calculate Your Profit and Loss
Do you think a spreadsheet is too boring or that using the percentage profit or subtraction models are too tasking?
Then consider using some of the online cryptocurrency calculators to check how much you earned and the amount you lost from crypto trading. These calculators can make it easy to check the profit and loss you have from your crypto trading.
Knowing How to Calculate Your Profit and Loss in Crypto Will Make You a Better Trader
The knowledge of calculating your revenue and losses is one of the essential skills that will make you a better trader. Moreover, you can try to curtail your greed in order to make more profits and stop losing money.
Do you want more cryptocurrency trading tips? Then read the exclusive content on CoinJournal to stay updated.