Recently, a friend asked me what pnl means, and it made me realize that many beginners are still quite unclear about this concept. To put it simply, pnl stands for profit and loss—your overall profit or loss. But in crypto trading, this is far more complicated than in traditional finance.

Let’s start with the basics. If you hold a certain coin, its value changes every day. How do we calculate that change? This is where the concept of MTM (mark-to-market) comes in. In simple terms, it means valuing your assets based on the current market price. For example, if you hold Bitcoin, its price fluctuates every moment, and MTM reflects those value changes in real time.

But here’s a key difference—unrealized profit and loss versus realized profit and loss. Many beginners mix these two up. Unrealized profit and loss is the floating profit or loss before you close your position—the numbers on your account. Realized profit and loss is the profit or loss you truly lock in. For example, if you buy ETH at $1900 and the mark price drops to $1600, your unrealized loss is $300. But as long as you don’t sell, the loss remains unrealized (floating). Once you sell at $1600, that’s when it becomes realized loss.

When it comes to the calculation methods, this is where things get really complex. There are three mainstream approaches: FIFO (first-in, first-out), LIFO (last-in, first-out), and the weighted average cost method. I’ve seen many people who don’t even know which method they’re using. Take FIFO as an example: you calculate your cost using the prices from the earliest buys in chronological order. Suppose Bob first bought 1 ETH at $1100, then bought another at $800, and finally sold 1 at $1200. Under FIFO, his cost basis is $1100, so he made a $100 profit. But under LIFO, his cost basis is $800, and the profit becomes $400. The same transactions can produce completely different results.

Another important concept is year-to-date (YTD) calculation. If you’re the kind of investor who holds long term, you can directly compare the value of your portfolio at the beginning of the year and at year-end, which quickly shows how you performed this year. For instance, if you held $1000 worth of ADA at the beginning of 2022 and it became $1600 by the beginning of 2023, that’s $600 in unrealized profit.

Oh, and you also need to consider percentage returns. Many people only look at absolute numbers, but percentages explain the picture more clearly. If you buy BNB for $300 and sell it for $390, you earn $90. But that $90 is a 30% return ($90/300×100). This ratio is a key metric for measuring trading efficiency.

In perpetual contracts, the meaning and calculation of pnl is even more complicated. You need to calculate both realized and unrealized profit/loss and then sum them up. Perpetual contracts have no expiration date—so long as your margin is sufficient, you can keep holding a position. But that also means you have to constantly watch funding rates and trading fees, along with other hidden costs.

Honestly, truly understanding what pnl means can greatly influence trading decisions. I now regularly analyze my open positions so I can see the efficiency of my strategy more clearly. Many people lose money simply because they don’t systematically track and analyze their trades, and in the end they can’t even tell whether they’re making money or losing it. If you use a platform like Gate, it usually provides pnl calculation tools so you can directly see your realized and unrealized profit/loss without having to calculate everything manually. Most importantly, don’t forget to factor in taxes and trading fees—there’s often a gap between “book profit” and the actual money you end up with.