Recently, I keep hearing questions about PnL in cryptocurrencies — what it actually is and how to calculate it. Many people come from traditional finance and think it's the same, but there are a few differences in crypto that are worth knowing.

I'll start with the basics. PnL stands for profit and loss — it shows how the value of your position has changed over a specific period. Sounds simple, but the devil is in the details. You need to understand concepts like market valuation (MTM), realized PnL, and unrealized PnL. Without this, trading can be overwhelming.

What is MTM? It’s simply the valuation of an asset at the current market price. If you hold Bitcoin, its value changes every second depending on the market price. A simple example: ETH was $1950 yesterday, today it’s $1970. Your PnL? +$20. Conversely, if it was $1980 yesterday, you have a $10 loss.

But wait, it gets more interesting here. You need to distinguish between two types of PnL. Realized PnL is the profit or loss you have actually "collected" — meaning you sold the position. Unrealized PnL is the paper profit or loss — you have an open position but haven't closed it yet.

Example of realized PnL: you bought Polkadot (DOT) for $70, sold it for $105. Profit of $35 — that’s yours. But if you bought ETH at $1900 and now the price is $1600, you have an unrealized loss of $300. It might bounce back, or it might go further down.

Now, about calculations. There are three popular methods. FIFO (First In, First Out) — you count from the first purchase. You bought 1 ETH at $1100, then another at $800. You sold at $1200. FIFO counts from $1100, so the profit is $100. LIFO (Last In, First Out) does the opposite — it counts from $800, resulting in a $400 profit. Quite a difference, right?

The third method is the weighted average cost. You bought 1 BTC at $1500 and another at $2000. The average is $1750. You sold at $2400. Profit of $650. This method is fair for most situations.

If you trade regularly, keep track of what you open and close. Opening is your first purchase, closing is your sale. You bought 10 DOT at $70, sold at $100. Profit of $30. Organization is key.

There’s also YTD — year-to-date results. You had ADA worth $1000 on January 1, and $1600 on January 1 the next year? Unrealized profit is $600. Useful if you hold long-term.

But what does all this mean in practice? If you want to calculate the percentage profit — you bought BNB at $300, sold at $390. Profit of $90. Percentage? (90 / 300) x 100 = 30%. That’s your actual return.

Perpetual contracts are a whole different story. You can hold a position long or short without an expiration date. You calculate both realized and unrealized PnL, then sum them up. Just remember transaction fees and funding rates — in reality, something always bounces back.

The whole point? Understanding PnL is understanding whether you’re making money or losing. Knowing your cost basis, quantity, and price of each transaction gives you control. You know where your money is, and you can make better decisions in the future. There are plenty of tools and bots that can help, but you need to have the basics in your head. That changes the game.