Recently, I was asked what exactly PNL is in trading, and I thought it was worth explaining because it's one of those concepts that sounds complicated but is actually quite simple.

PNL stands for Profit and Loss. Basically, it's your financial thermometer for each trade you make. It tells you whether you made or lost money, and it's the number we all want to see in green.

The formula is almost common sense: take the price at which you sold, subtract the price at which you bought, multiply by the amount you moved, and that's it. That’s your PNL. Of course, then you subtract the exchange fees because those do hurt.

Let me give you a clearer example. Imagine I bought 0.1 BTC when it was at $40,000. I invested $4,000. Then the price went up to $42,000 and I decided to sell. I received $4,200. The difference is $200, but after paying fees, I end up with about $198. That’s my positive PNL.

Now, if instead of selling at $42,000 I had sold at $39,000, I would have a negative PNL of about $800 (minus fees). It’s the same but in reverse.

There are two types of PNL that are important to differentiate. Unrealized PNL is what you gain or lose while the position is still open, meaning money that’s not truly yours yet. Realized PNL is what you’ve already closed, when you’ve sold and the money is in your wallet. The latter is the one that really matters because it’s what you’ve taken out of the game.

There’s also ROI, which is PNL expressed as a percentage, so it’s a bit different but related. And if you’re using leverage, the PNL is amplified for both gains and losses, so that’s where things get intense.

Market volatility causes your PNL to jump up and down constantly if you have open positions. That’s why some traders prefer not to look at the screen every five minutes, because watching your money fluctuate can be stressful.

In conclusion, PNL is the most important indicator you need to understand if you want to trade. It’s simple: buy low, sell high, and the difference is your profit. Or buy high, sell low, and the difference is your loss. Crypto trading is exactly that, just faster and with bigger numbers.