The losses and gains (PnL) in the crypto world: quick guide

The crypto universe is full of ups and downs 🌐. Understanding what losses and gains are seems vital. Bitcoin goes up and down like a roller coaster these days. And the market doesn't stop. It never stops.

PnL: the basics 🧮

It's simple. PnL shows if you make or lose money. Nothing more. Nothing less.

The market value

MTM reflects what something is worth right now. Imagine you have ETH. Yesterday $1,950, today $1,970. You made $20. Good for you. If it were the other way around, you would lose. That's how it works.

Looking to the future 🔮

Currencies change in value. We all know that. You stake $1,000 in TRX. They promise you 4% annually. After 365 days you will have $1,040. Pure mathematics.

Completed or not? 💰

Done: You sold. It's history. You bought DOT at $70, sold at $105. You pocketed $35. Or maybe you sold at $55 and lost $15. It's done.

Not done: You are still hodling. Donald bought ETH at $1,900. It is now worth $1,600. He is down $300, but only on paper. He hasn't sold. Maybe he's waiting for it to go up. Who knows.

Calculating the PnL: different paths 🧠

FIFO (first in, first out)

Bob is an interesting guy. He bought 1 ETH for $1,100. Then another one for $800. He sold one for $1,200.

With FIFO, he earned $100. Not bad.

LIFO (the last in, first out)

Same Bob, same purchases. With LIFO, he gained $400. Quite better, it seems.

Weighted average

Alice bought 2 BTC. One at $1,500, another at $2,000. She sold one at $2,400.

Average price: $1,750 Won $650. Alice smiles. 🌕

Open/Closed Positions

Buy. Sell. Calculate the difference. Simple. 10 DOT at $70, sell at $100. That is $30 profit for each DOT.

Year to date 📅

You start 2022 with $1,000 in ADA. By 2023, you have $1,600. You earned $600 in a year. Not too bad.

Profit percentage %

You buy BNB for $300. You sell for $390. It is $90 in profit. 30% profit. The fire. 🔥

PnL in perpetuals 📝

Perpetual contracts are rare. They do not expire. To calculate here, you need to add everything up. And watch out for the fees. They will eat you alive if you don't pay attention.

Why does it matter to understand this?

Knowing how to calculate your PnL gives you insight. You can see which strategies work. Which don't. Where you lose money. Where you gain it.

In crypto, volatility is the norm. It seems that having this compass could save you from more than one financial shipwreck 🧭.