How to Calculate Profit and Loss on Crypto
The primary goal of investing in cryptocurrencies is to profit. While profiting every time from trades may not be possible, you can still apply feasible strategies that will help you maximize profits.
For example, the general rule of thumb is to buy crypto at a low price and sell it at a higher price than you bought it. Also, as long as you do not sell, you technically do not make a loss because crypto prices can surge at any time.
Applying this simple strategy can increase your crypto investing experience. Still, it will benefit you to understand how to calculate profit and loss on crypto to help make better-informed decisions. Let's teach you how!
Why You Need to Calculate Your Crypto Profit and Losses
Investing in crypto is an active sport. Day traders are known to open anywhere between 5 - 15 positions per day because of crypto's drastic daily price movements.
Buying crypto at a low price will set you up for gains, but you will need to know how to calculate your crypto profit and losses so that you can;
- Become a Better Trader: The crypto market is very competitive, and to survive in it, you need to think quickly. As buy/sell levels control the market, you need to know how to calculate your gains/losses to learn if a position will favor you or cost you.
- Increase Your Potential To Profit: Knowing How to calculate your crypto profit and losses will help you profit more. Many new crypto investors have missed out on potential profits because they did not realize the gains they made on their crypto early enough to "Take Profit".
- Set Profit/loss Limits: Strategy is vital when investing in crypto. Calculating your potential gains/losses helps you to set a profit limit or crypto price percentage limit to sell and avoid the risk of losing your capital.
- Pick The Best Coins: Some coins are affordable, and some are costly. This makes their growth or daily percentage increase differ. Smaller priced tokens like Cardano can have 5%-20% price changes within a day. While higher priced tokens like Bitcoin may only witness 1%-8% price changes in a day, under usual market circumstances.
Knowing how to calculate crypto profit/loss helps you pick the right coins by using their expected price changes.
An investor has $5000 capital and plans to invest in Bitcoin valued at $50,000 or Binance coin valued at $500. And he's wondering which investment would profit him more if BTC should increase by 5% and BNB by 15%.
If he were to invest $5000 in BTC, he would own 0.1 BTC.
Using our formula below, $5,000 x 1.05 = $5,250.
If he were to invest $5000 in BNB, he would own 10 BNB coins.
Using the same formula, $5,000 x 1.15 = $5,750.
By calculating your potential gains/losses, you can choose your coins more strategically. As opposed to buying coins because of its fundamentals or project backing. You can use the expected percentages to invest and make money on volatile cryptos on a day-day basis.
Calculating Profit and Loss on Crypto
Calculating your gains on your crypto will let you know if it's the right time to sell or not. There are several ways to go about this. For one, there are online crypto profit and loss calculators that can help you realize your potential gains. You can also apply these methods to calculate your potential gains or losses.
1. Subtract the Selling Price from the Buy Price
One of the easiest ways to know how much you've made on your crypto is to subtract the selling price from the cost or buy price.
Selling Price - Buy Price
For example, let's assume you bought Bitcoin for its trading value of $10,000 and sold once its price spiked to $10,900.
To realize your profit, you must subtract the selling price from the buy price. So, that is $10,900 - $10,000 = $900. The remaining sum is your profit.
Likewise, to calculate a loss, let's assume BTC price falls and you sell at $8000. It will be calculated as $8,000 - $10,000 = -$2000. This means you're running at a loss of $2,000.
2. Multiply Buy Price by the Percentage Profit
When you look at a crypto price chart, a majority of price changes
are expressed in percentages.For instance; If Bitcoin price shows,
$12,000 (+3%). This would mean that Bitcoin has increased by +3%
in the last 24 hours.
To calculate your your crypto profit or loss using percentages, here's what you should do;
Add (1) to the percentage you want to buy or sell at. So, using a 5-50% ratio. It would look like this.
At 5% = 1.05
At 10% = 1.1
At 20% = 1.2
At 30% = 1.3
At 40% = 1.4
At 50% = 1.5, and so on till 100% ,which is represented by 2.
After Adding 1 to the price change percentage, you should multiply it by your buy/entry price.
Buy/Entry Price x (1+ Percentage)
So, if you bought BTC for $5,000 and the price increased by 5%
You’ll have; $5,000 x 1.05 = $5,250.
And if you bought BNB at $5000 and it has a 15% increase, your total profit will be; $5,000 x 1.15 = $5,750.
Calculating crypto profit and loss is important for every investor. It will help you manage risks and trade with confidence. These formulas are easy to remember and will help you increase your earnings, if applied with effective crypto trading strategies and day trading strategies.
This content should not be treated as investment advice. Cryptocurrency is a highly risky and speculative market.