Cryptocurrencies are the most volatile financial asset class in which you can invest your money. It's pretty normal for top cryptocurrencies to have daily price swings of several percent. In contrast, lower-cap altcoins can even have a price change as dramatic as several tens of percent in a short time.
Thousands of traders lose much more than they earn from crypto trading because they don't have a clear trading plan and strategy. For instance, one of the biggest mistakes beginner crypto traders make is that they don't calculate their crypto profits and losses.
Let's look at the importance of calculating crypto profits and find the most well-known methods for tracking the profitability of crypto trading activity.
how to calculate profit in crypto trading?
To effectively monitor the total profitability of your crypto portfolio, it is crucial to adopt a consistent method for calculating your profits and losses. Consistent record-keeping is vital, as it enables you to gauge the success of your trading strategy. With accurate records of gains and losses, your chosen approach becomes relevant..
Subtraction of Buy From Sell Value
A straightforward way to calculate the profitability of a crypto trade is by subtracting the purchase price from the selling price. For example, if you buy 1 Ethereum (ETH) for $3,000 and sell it a month later when its price has increased to $3,500, your profit will be $500 (3,500 - 3,000). Similarly, if the price of ETH drops to $2,500 and you sell, resulting in a $500 loss (3,000 - 2,500). It's essential to keep track of your purchase prices, which can be easily monitored by viewing your order book and transaction history on the crypto exchange used for trading.
Profit Percentage Calculation
Another popular method for calculating crypto profits is using percentages, favored by experienced traders who focus on monitoring the portfolio's percentage increase after a trade rather than just the dollar amount. This method is frequently employed by brokers with set sell prices and planned profit-taking levels. To find percentage profits, multiply your initial purchase price by the target profit percentage. For example, if you aim for a 10% increase in the crypto you hold, you multiply the buy price by 1.1 or 1.2 for a 20% increase. For instance, if you buy Ripple (XRP) for $0.90 per coin and want to sell it when it reaches a 20% increase, you would multiply $0.90 by 1.2, resulting in a target selling price of $1.08. Your potential profit would be $0.18.
The unrealized gains method is a valuable way to plan for crypto traders. Still, it requires constant monitoring of market changes, making it best to use portfolio tracking software or receive price change alerts in your crypto wallet. Unrealized gains refer to profits that have yet to be taken from the market but can be if desired. For example, if you purchased Solana (SOL) at $100 per coin and its price increases to $150, you have $50 of unrealized gains per SOL. The gains remain unrealized until you sell, but if you choose to sell, they become real profits. The only thing to remember is market volatility, as placing a sell order for SOL coins at $150 per coin may result in missed profits if the price suddenly drops to $130. The fast-paced nature of crypto trading means you must be quick with market orders, as prices can fluctuate rapidly.
Crypto Trading Spreadsheet
Using an Excel spreadsheet is an effective method to keep track of your crypto trading profits and losses. To create the spreadsheet, you need to have five sections:
- The name of the crypto you're trading.
- The number of coins owned.
- The buying price.
- The selling price.
- The date of the trading.
This allows you to comprehensively view all your crypto trades and easily calculate your gains or losses through subtraction calculation. You can create your spreadsheet or utilize various free online spreadsheets explicitly designed for tracking crypto portfolios.
Crypto Profit Calculator Platforms
Another helpful tool for calculating crypto profits is using specialized platforms. These platforms offer a wide range of cryptocurrencies and allow you to input the number of coins purchased, the buy price, the selling price, and investment/exit fees. The calculator will then automatically determine your profits or losses in real time. Using a crypto calculator with a personal profitability spreadsheet, where you can input the results, is a smart approach.