How To Calculate Your Crypto Trading Profit And Loss
How To Calculate Your Crypto Trading Profit And Loss
It’s very important to calculate your crypto profits and losses. Calculating your crypto profit and loss is vital while jumping on the crypto investment frenzy so that you can build an incredible crypto portfolio.
Determine if you are getting the expected returns from your crypto investments by keeping track of profits and losses.
You can easily do so with the implementation of a P&L template.
A cryptocurrency portfolio may be analyzed to see which assets are performing well and which ones are underperforming, giving you a comprehensive picture of your overall return on investment.
Calculating your cryptocurrency profit and loss can be done in various ways.
Utilize unrealized profits
In a volatile market like the cryptocurrency one, it’s not uncommon for investors to want to cash in on their gains and exit the market.
By constantly monitoring the market, traders can determine whether or not their deals are profitable or not.
A trader’s ability to perceive the big picture can be hindered by focusing on market fluctuations.
For instance, if you paid $3,000 for a cryptocurrency like bitcoin, watch how the market fluctuates over time.
If the value of the crypto rises to $3,500, you have automatically made a profit of $500 without selling or exchanging your Crypto.
However, the value of the crypto can drop once your order is filled.
This usually occurs when the number of buy orders outnumbers the number of sell orders.
If the value of the Crypto was $3000 when you bought it, and it drops to $2500, it means you have lost $500.
Nonetheless, it is important to keep in mind that it is not a loss since you have not sold it.
This method differs from the subtraction method because you calculate your profit and loss without making any sales.
Deduct the sales price from the price you bought it
Profit and loss can be calculated simply by deducting the price you sold the crypto from the price you purchased it.
For instance, if you bought Bitcoin for $300 and sold it for $400, it means you have made a profit of $100. You will know the amount of profit you’ve made by subtracting $300, which is the price you bought it from $400.
You can also calculate your losses this way by deducting the sales price from the cost price. For instance, if you purchased bitcoin for $300 and sold it for $250, it means you lost $50.
With the help of a spreadsheet, you can keep track of your cryptocurrency trading loss and profit in one place.
All of this can be broken down into subsections, like:
- The names of the cryptocurrencies you purchased.
- The amount of currency traded.
- The cost of buying cryptocurrencies.
- The price you traded the cryptocurrency.
- When you sold the cryptocurrency.
Once you’ve completed this list, go back and look at your starting and ending costs. You’ll know right away if you made or lost money.
Obtain the Profit Percentage by Multiplication
This is the most preferred method of calculating profit and loss for most cryptocurrency traders. You can calculate your profit by multiplying your cryptocurrency profits by the percentage rise.
To do this, follow these steps:
Multiplying your initial investment’s cost by the appropriate percentage expression will give you your final investment’s current market value. There are two ways to indicate profit percentages between 10% and 50%.
For example, if you bought ETH at $2 as its entry price, you can aim to make about 10% of the investment and liquidate your holdings. The entry price must be multiplied by a 10% profit percentage in this situation. As a result, your withdrawal value will be $2 multiplied by 1.1.
To obtain your exit value, your entry price($2) will be multiplied by 1.1. …… So, 2×1.1=2.2
You can calculate your profit by deducting your entry value from your exit value. I.e
2.2-2=0.2. ……..This means you made a profit of $0.2.
When multiplying by a 100, the guideline is to add one.
Utilize a cryptocurrency profit calculator
All the other methods of calculating profit and loss may prove too difficult and time-consuming.
You can opt to use a cryptocurrency profit calculator tool to help you check your investment profit and loss.
These tools are available online. One of the best crypto profit calculators is the CoinStats profit calculator tool.
Why is it important to calculate your crypto profit and loss?
Calculating your crypto profit and loss is a crucial part of cryptocurrency investment. Unfortunately, many traders do not even bother to calculate their profit and loss, despite how important it is.
Others realize it too late that they are supposed to calculate their profit and loss.
Without proper calculation of your estimated profit and loss, you will not be able to make beneficial cryptocurrency purchases or sales. To be a good trader, you always have to make these calculations.
The cryptocurrency market is also subject to the law of demand and supply. The value of cryptocurrencies falls when they are low in demand and increases when they are high in demand or rare.
To benefit from lower prices, it’s advisable for you always to notice how the price fluctuates and investment trends.
Purchase cryptocurrencies when their prices are low. The price you purchase the crypto will help you determine if you will make a profit or loss when you choose to sell your crypto.
You will profit if you sell your crypto for a higher price than you purchased it, and you have a loss if you sell less than its original value.
Cryptocurrency investment mistakes to avoid if you want to make a profit
To stay in the green at all times, here are some mistakes that you should avoid:
The absence of an investment purpose
It is possible to lose money in crypto trading if you don’t have a specific goal in mind when you begin trading.
With a well-thought-out goal, you’ll be better able to maneuver the crypto market. Before joining the cryptocurrency frenzy, make sure you know what you’re doing.
When deciding on the motivation, avoid being motivated by the need to make quick cash.
Making a short-term plan
The unpredictable and undeveloped character of the crypto industry necessitates a long-term approach from investors.
The crypto industry is still immature and uncertain because new ideas are continuously being explored.
The market may be flourishing one minute and dying the next. You’ll get better results if you take a long-term commitment.
Having no specific trading strategy
Several newbies have no idea where to enter or leave a deal. As a result, they wind themselves always pursuing the highest possible price.
Before entering a trade, it’s nearly necessary to have entry and exit levels in mind.
Directly entering the trading market with no prior experience
A novice trader should steer clear of the crypto market because of the coins’ volatile nature. Pre-investment due diligence should include a review of cryptocurrency fundamentals and technical analysis.
There are many trading simulators available that can assist you in improving your knowledge of crypto-trading. Paper trading is a term for this practice.
The main goal of every cryptocurrency investor is to gain profit. It is crucial to calculate your crypto profit and losses. You can do this by using one of the methods above or simply using a crypto profit calculator tool.
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