Recently, I’ve been chatting with some novice traders and found that many people have only a superficial understanding of profit and loss calculations in cryptocurrency, and even directly apply traditional financial concepts to the crypto world, resulting in chaos. Honestly, if you can’t clearly tell whether you’re making money or losing money, trading can easily turn into a psychological battle.

Let’s start with the basics. In crypto trading, PnL (profit and loss) actually reflects the change in the value of your held assets over a certain period. But there are many details that are easy to overlook. For example, mark price (MTM), realized profit and loss, and unrealized profit and loss—understanding these three concepts will give you a deeper understanding of your investment portfolio.

The method I most often use is the weighted average cost method. Suppose you buy Bitcoin twice: first at $1,500 for 1 BTC, then at $2,000 for 1 BTC, and later sell 1 BTC at $2,400. At this point, your average cost is $1,750, and your actual profit is $650. Calculating it this way makes your thinking much clearer and prevents misjudging based on a single trade.

Another point that’s easy to confuse is realized versus unrealized. Realized PnL only counts when you actually close a position—that is, when you sell the coin. Unrealized PnL is when you still hold the position and see the numbers fluctuate on your screen; these haven’t been locked in yet. For example, if you bought Ethereum at an average price of $1,900, and now the mark price drops to $1,600, that’s a $300 unrealized loss. This number will keep changing until you decide to close the position.

If you’re a long-term holder, the Year-To-Date (YTD) calculation method is very useful. I have a friend who held $1,000 worth of Cardano at the beginning of 2022, and by the start of 2023, it rose to $1,600. Despite big fluctuations in between, this method clearly shows the actual performance over the year.

For active traders, I recommend calculating PnL per trade, especially when the number of trades isn’t large. For example, if you buy Binance Coin at $300 and sell at $390, that’s a $90 profit, which is a 30% return. Doing this for each trade makes everything clear and helps you identify issues during review.

Perpetual contract calculations are a bit more complex because you need to consider both realized and unrealized PnL, as well as funding rates and trading fees. But the principle remains the same: include all these factors in your calculation.

Honestly, manual calculations are prone to errors, especially when trading frequently. I now use dedicated trading tools and spreadsheets to track the profit and loss of each trade, which allows me to quickly identify which strategies are effective and which need adjustment. When trading on Gate, I also regularly export data to analyze my PnL performance, which greatly helps optimize trading decisions.

If you’re still using primitive methods to calculate profit and loss or don’t systematically track your trades, I suggest changing that habit immediately. Knowing exactly how much you’ve gained or lost on each trade is the first step to becoming a more rational trader.