Crypto P&L: The Guide Every Trader Needs — No Boring Jargon

If you trade crypto and haven’t mastered the concept of PnL (Profit and Loss), it’s time to get serious. The difference between understanding this correctly or incorrectly can cost you thousands of dollars.

The Basics: What Is PnL Really?

Imagine you bought 1 ETH at $1,900, but today it’s at $1,600. That’s a paper loss of $300. If you sell now, that loss becomes real.

This is what traders call Unrealized PnL — the profit or loss you see but haven’t actually taken out yet. Once you sell, it becomes Realized PnL — actual money gained or lost.

The Three Methods to Calculate Your Gains or Losses

1. FIFO (First In, First Out)
Use the price of your earliest purchase. For example, if you bought 1 ETH at $1,100 and later at $800, when you sell, you use the $1,100 purchase price.

2. LIFO (Last In, First Out)
The opposite: use the most recent purchase price. In the previous example, that would be $800.

3. Weighted Average Cost
The most realistic method. If you bought 1 BTC at $1,500 and another at $2,000, your average cost is $1,750. Selling at $2,400 yields a $650 profit.

The Metrics That Matter

Mark to Market (MTM): The current market price of your asset. If BTC is at $45,000, that’s your MTM value.

YTD (Year-to-Date): How much you’ve gained or lost since January 1. If you started with $1,000 in ADA and now have $1,600, your YTD gain is unrealized.

Perpetual Contracts: The Most Complex Game

In perpetual contracts, total PnL = Realized PnL + Unrealized PnL. The tricky part is you need to add both because you can hold open positions indefinitely — as long as you have enough margin.

The Percentage That Matters

Don’t just look at dollar amounts. Check your ROI percentage. If you made $90 on a $300 investment, your return is 30%. This tells you whether your strategy works or if you’re just lucky.

In Real Life

All this is theoretical. In practice, you need to account for:

• Trading fees
• Taxes
• Funding rates (in perpetuals)
• Volatility that can wipe you out

Pro tip: Use spreadsheets or tracking bots. Manual tracking is a nightmare, and mistakes can be costly. The trader who understands their real PnL adjusts their strategy accordingly. The one who doesn’t is just gambling.