How To Calculate Profit In Cryptocurrency Trading? – Guide For Newbies
Profit is the name of the game in cryptocurrency trading. Just like stocks and bonds, as a trader, you are always looking to make a profit on your cryptocurrency assets.
Investing in cryptocurrency trading is primarily done by a lot of people so they can earn profits. It is crucial that every trader knows how to calculate profit in cryptocurrency trading. Without this calculation, you will never know when a good time is to sell your assets and earn money.
If you have been regularly trading, or you are a newbie to the cryptocurrency trading market, do you know when you are in profit? How do you make the decision when to sell your crypto assets?
Read on below to learn how to calculate your profits and keep track of your gains and losses while trading.
Why is calculating profit important?
In the cryptocurrency market, you are taught to buy low and sell high. This means that you need to watch the market and the price actions of each cryptocurrency, and strike when the price is low. Coins that are on an upward trend will eventually increase in price, and this is the time that you can sell to make a profit.
But why is calculating profit so important? Whenever you buy a coin, you spend your own money to acquire this crypto asset. You make a profit when you can sell the asset for a price that is higher than what you originally bought it for. If you don’t calculate the possible profits that you will be making, you can possibly sell your crypto asset at a lower price, resulting in a loss.
Additionally, a common mistake that can be made by both new and seasoned traders alike, is waiting for too long before selling the coin. Unless you are using the hold strategy where you leave your coins for a few years to earn profits, waiting for too long can result in a loss.
Buying low and selling high is good and well if you execute the strategy with discipline. If not, you can easily be tempted by an upward trend of a certain coin and wait for it to go higher and higher.
This is a risky strategy because the price can suddenly drop. Instead of making a profit, you will be stuck with a loss. If you set a selling price point that is too high, there is the possibility of the market price suddenly dropping before you even get the chance to sell.
This is why calculating profit is so important. Sticking to a plan and a realistic price point that you will sell your coin at is better than the riskier strategy of just waiting for the price to go to the moon.
How to Calculate Profit in Cryptocurrency Trading
To get started on calculating your profit in cryptocurrency trading, you must first know your breakeven price. The breakeven price is the price that you bought your coin at. You need to take note of this price to be able to calculate your profit or loss.
Let’s use a simple example. Take note that this is only for illustrative purposes and the numbers here are not the actual market prices today.
Say you bought 1 Bitcoin last month for $8,000. This is your breakeven price. When you checked the market today, the price of a Bitcoin already increased to $8,250. Simply subtract the breakeven price from the current price, and you will get your profit.
Subtracting $8,000 from $8,250 will equal to $250. This means that if you sell your Bitcoin today, you will be able to earn a profit of $250. You can then decide if you want to cash out this profit immediately, use it to buy another crypto asset, or leave it to possibly earn more.
This is just a very simple example on how to calculate your profit. Calculations are more complicated if you have several coins in different cryptocurrencies, if you buy and sell regularly, and if you have different price point targets for each crypto asset.
There are other profit and loss metrics that you should also keep in mind when calculating your profit. So not only will you calculate for your total profit, but depending on the targets that you set, you might need to use any of these metrics below.
- Average buy price
- Average sell price
- Realized profit: Profit that is made on coins that you already sold.
- Unrealized profit: Profit that is based on calculations using the current market price.
- Total profit: The sum of the realized and unrealized profit.
Using a Spreadsheet
One way that is effective for calculating your profit is by creating your own spreadsheet on excel or numbers. You can easily input your breakeven price, current price, number of coins, and the appropriate formulas to compute for your profit.
The downside of using a spreadsheet is that all the data must be inputted manually. Since the market prices are changing every day, you need to be diligent in updating prices. It will become more difficult once you have multiple cryptocurrencies. This method is time consuming and you are prone to commit errors because of the manual input. However, if you are just starting out with a few coins, you can easily use a spreadsheet to calculate your profits.
Crypto Trading Calculators
The easiest way to calculate your profit when trading is to use readily available crypto trading calculators. If you find that using a spreadsheet is too much work and consumes a lot of time, you can find a trading calculator that works for you.
One good option is the Binance profit calculator, also called the Binance Futures Calculator. You can use it to calculate your profit and loss, margins, and returns. You can also use it to input a target price point that you want to reach before selling.
Another good trading calculator is the Easy Bitcoin calculator which can calculate for your profits. However, this is limited to Bitcoin only.
One other option is the calculator from Altrady which aside from calculating your profits, can also show you your latest trade position and the estimation of your crypto assets when converted into US dollars or other currencies.
The best thing about crypto trading calculators is that aside from being convenient, most of these calculators are available with a free trial period or for a minimal amount. Want more awesome tips on cryptocurrency trading? Go here!
Knowing how to calculate profit in cryptocurrency trading is one of the basic skills you need to become a successful trader. You can either create your own spreadsheet or use a crypto trading calculator. The bottom line is that you need to know how much your profits are at to be able to know when to sell or hold your position.
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