Anyone who trades cryptocurrencies sooner or later becomes obsessed with the question: how much did I really earn or lose? And this is where PnL, or profit and loss, comes into play. But wait, what exactly is PnL in the crypto world? Is it the same as in traditional finance? It turns out it's not as straightforward as it might seem.

We started trading and suddenly realized that without a clear understanding of how to calculate gains and losses, everything becomes chaotic. That's why it's worth understanding exactly what lies behind these terms. PnL essentially reflects the changes in the value of your position over a specific period.

Before we go further, we need to understand a few key concepts. Mark-to-Market (MTM) is the process of valuing your assets based on the current market price. If you're holding Bitcoin, its value changes with every market tick. If today ETH costs $2,270 and yesterday it was $2,250, your profit is $20 per unit. Simple, but important.

But what exactly is PnL in practice? There are two types: realized and unrealized. Realized PnL is something concrete—you sold coins and you know exactly how much you earned or lost. Example: you bought Polkadot for $70 each, sold it for $105. Your profit is $35. End of story, position closed.

Unrealized PnL is something different—it’s the gains or losses that exist only on paper. You hold ETH that you bought for $1,900, and now it's worth $2,270. You have an unrealized profit, but until you sell, it’s just numbers on the screen.

Now, how do you calculate this in practice? There are different methods. FIFO, or first-in, first-out—you take the price of the first purchase. LIFO, or last-in, first-out—you take the most recent purchase price. Or the weighted average cost—you calculate the average of all your purchases. Each method gives you a different result, which can matter for taxes.

If you bought 1 BTC for $1,500, then 1 BTC for $2,000, and sold 1 for $2,400—using the average, your cost basis is $1,750, so your profit is $650. That’s PnL in action.

Many people calculate this from the beginning of the year (YTD). You’ve held Cardano since January—back then it was worth $1,000, now $1,600. The unrealized profit is $600. Useful for tracking how you’re doing.

And what about perpetual contracts? That’s more advanced—you need to calculate both realized and unrealized PnL, then add them together. But there are already funding fees, margin deposits, and other factors that make it more complicated.

Understanding how to calculate PnL and what it means for your portfolio is key to making better decisions. Knowing exactly how much you’ve earned on each trade allows you to evaluate your strategy. Does it work? Should you change something? The answers are in the numbers.

Finally, remember—these are simplified calculations. In the real world, you have to consider taxes, transaction fees, volatility. But if you understand the basics, the rest is just details. Many trading platforms, including Gate, have built-in tools for tracking PnL, so you don’t have to do everything manually. It’s worth using them.