# Maximise Your Profits by Understanding Crypto PnL Calculation

## What is Profit and Loss (PnL)?

Profit and loss (PnL) is a term used in traditional finance to evaluate the financial performance of a trader or investor. In cryptocurrency trading, it is a metric used to measure the gain or loss from buying and selling cryptocurrencies. To calculate it, traders use methods like FIFO, LIFO and YTD.

## Key Terms in PnL Terminology

Mark-to-market (MTM) – This refers to the process of valuing an asset or financial instrument based on its current market price or fair value.
Future Value – Future value indicates the value of a digital coin at a future point in time. For example, if an investor stakes Tron worth \$1,000 with a 4% yearly reward, after one year they will get back \$1,040.

## Calculating PnL

The general formula for calculating PnL is: MTM Price today minus MTM Price yesterday = PnL. Suppose the MTM price for Ether today is \$1,970 while the MTM price yesterday was \$1,950; in this case the PnL would be +\$20 indicating a profit of \$20. On the contrary if the MTM price was \$1,980 yesterday there would be a loss of -\$10.

## Realized vs Unrealized Profit/Loss

Realized profit/loss refers to any gains or losses incurred when you sell your holdings and close out your position in the market. Unrealized profit/loss reflects gains or losses that have occurred but are not realized until you sell your holdings i.e., they remain “unrealized” unless you execute a trade to realize them as gains/losses on paper only at this point in time.

## Conclusion

Profit and loss (PnL) helps traders understand their performance in cryptocurrency trading better by tracking their results over different periods of time through metrics like mark-to-market (MTM), realized PnLs and unrealized PnLs among others. Understanding these terms can provide insight into how successful their trades are overall helping them make more informed decisions going forward.