Are you starting to trade cryptocurrencies and everyone is talking to you about PnL? You probably wonder, what does PnL actually mean and why is everyone calculating it? Simply put, it’s the profits and losses from your investments, but in the crypto world, it’s a bit more complicated than on traditional markets.

If you’ve ever traded stocks or forex, you already know the concept of PnL. In cryptocurrencies, it works on a similar principle, but there are a few additional nuances. Understanding what MTM (mark-to-market), realized PnL, and unrealized PnL are is key to truly knowing how you’re doing. Without a clear picture of how much you’ve earned or lost, trading can be really overwhelming.

I often see traders who have open positions but don’t know exactly where they stand. That’s why the question “What is PnL?” is so important. PnL reflects the change in the value of your position over a specific period.

Let’s start with the basics. MTM is simply the valuation of your assets at the current market price. If you’re holding Ethereum, its value changes every second depending on the market price. Today, ETH costs around $2,130, and yesterday it was $1,950. The difference is your unrealized PnL. If you own ETH, you’ve gained about $180 on paper.

But wait, there’s a difference between what you see on the screen and what you’ve actually earned. Realized PnL is only when you sell. Suppose you bought Polkadot for $70 and sold it for $105. That’s your actual profit — $35. Unrealized PnL, on the other hand, is the gains you still hold in your wallet. If you bought DOT at an average of $70, and now it costs $1.25, well, that’s an unrealized loss.

To calculate what PnL exactly means for your transactions, you need to know a few methods. The simplest is FIFO — first in, first out. You bought 1 BTC at $1,500, then at $2,000. When you sell, you consider the first purchase price. This gives you a clear picture of your costs.

Another method is LIFO — last in, first out. This favors recent purchases more. The third option is the weighted average cost, where you calculate the average of all your purchases. In this case, the average of $1,500 and $2,000 is $1,750.

I often hear beginners ask: what about perpetual contracts? That’s a bit more complex because you need to add the realized and unrealized PnL together. But the principle remains the same — the difference between where you entered and where you are now.

An important thing everyone forgets — taxes, transaction fees, funding rates. These things really add up. If you bought BNB for $300 and sold it for $390, that’s theoretically a $90 profit, or 30 percent. But after fees, it might be 25 percent. That’s why you always need to account for these.

Finally, if you want to track your results from the beginning of the year, you calculate YTD. Take the value of your portfolio on January 1st and compare it to today. This gives you a full picture of your unrealized gains. For example, Cardano could have increased from $1,000 to $1,600 over the year — an unrealized profit of $600.

Today, we also have tools that do this for us — special spreadsheets, trading bots that track every transaction. But understanding what PnL is remains fundamental knowledge every trader should have. It influences how you will trade in the future. If you know exactly how much you’ve earned or lost, you’ll make better decisions. Sometimes it’s worth analyzing your open and closed positions to see where you really stand. This helps you trade more consciously and organized.