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How to Calculate Your Crypto Trading Profit?

how to calculate profit in crypto

What is Crypto Profit?

Profit is what this whole crypto game is all about. Almost everyone invests in cryptocurrency to capitalize on its volatility. And, in order to invest wisely, it is important to be able to measure the profit that you receive from your crypto assets. It is much easier to do this if you do not withdraw and trade your crypto, but save it in your wallet in full. However multi-cryptocurrency owners and avid traders will have to do a bit of math they may have had trouble within school. 

Crypto profit calculating is essential to knowing when to buy and when to start getting rid of your digital money. Such a chore will eventually make you a super trader or a smart investor. 

Fortunately, today there are many useful tools that make solving crypto-math problems easier. We will look at the most useful tools and techniques that are most often used by traders in calculating their crypto profit.

How to Calculate Profit in Cryptocurrency Trading?

Calculation by Subtraction

Before you proceed with the calculation of profit that your crypto has or has not made, you should first find out your break-even price that is the price that you purchased your coins at. This price will be the starting point in the profit or loss calculation. Let’s see how this works with a simple example.

Let’s imagine you bought 1 Bitcoin (BTC) last month for $30000. This is your break-even price. When you checked the market today the price of Bitcoin had already risen to $42,000. To get your profit, simply subtract the break-even price from the current price. If you subtract $30,000 from $42,000, you get $12,000. This means that if you sell your bitcoin today, you could make a profit of $12,000. you can then decide if you want to cash out that profit immediately, use it to buy another crypto asset, or keep it to possibly earn more.

Calculation by Multiplication

The profit metrics are normally expressed as a percentage value, and you need to be able to manage them too. So instead of subtracting you can multiply your break-even price by the corresponding percentage expression (1.1 for 10%, 1.2 for 20% etc.). This method works especially well for those who set a target price for themselves after which they sell their assets. 

Let’s consider this method of calculation using our example. You still have the same 1 BTC that you bought for $30,000 and didn’t spend. You intend to make 40% of the trade and exit the market. Therefore, to find out the target value of your asset, you need to multiply the break-even price by the appropriate profit percentage for 40%. We multiply $30,000 by (x) 1.4 (40), and we get $42,000. That is, you know that when your Bitcoin rises to $42,000, you can sell it profitably, receiving 40% or $12,000 profit. 

A similar calculation method can be used for any target profit. These are examples of basic profit calculations that work if you don’t do anything with the assets you have. However, if you regularly buy and sell different cryptocurrencies, the calculations become more complicated.

What do Traders use to Calculate Profits and Loss?

Depending on preferences and goals, traders can use various tools to optimize their work. Below are two of the most used ways to calculate and track your profits.

Using a Spreadsheet 

Another way to estimate the amount of your profit is to make a spreadsheet in Excel. There you can enter the name of your coin, the price for which you bought it, the current price, the quantity, and the corresponding formulas for calculating your profit. 

Of course, due to some shortcomings, this method will be suitable only for novice traders who do not have a lot of coins. The fact is that since all the data has to be entered manually, it is not very convenient and time-consuming. In addition, there is a possibility of making a mistake during input.

Crypto Trading Calculators

If spreadsheets and calculations bore you, these methods are definitely not for you. Luckily, there is something interesting that is as simple as possible and does not require the awakening of the mathematical genius in you. It comes to a crypto trading calculator.

Now almost every reputable exchange has a profitability calculator. Therefore, it will not be difficult for you to find one that suits you. Traders love to use calculators, because they are intuitive, don’t require much time or thinking skills, and most of them come with a free trial period. 

Of the top ones, chosen by even the most sophisticated traders, there are: a profit calculator from Binance, a calculator from Altrady and easy Bitcoin calculator, which was designed exclusively for dealing with Bitcoin trading profit.

Conclusion 

Regardless of which method you choose: utilizing a crypto trading calculator or creating a spreadsheet, calculating crypto gains will help you become a great trader. This way you stay up to date with crypto events and closely monitor the market, which will tell you how to manage your digital assets. When the price of the coin in your possession increases to the desired value, you can sell it profitably. Conversely, if you do not keep your eye on the market and calculate the possible profit, there is a risk of incurring losses by selling your assets when the price is low.

FAQ

Why is it important to use unrealized profits?

In short, using unrealized profit will help you profitably realize it. Say, you bought 10 Dogecoins (DOGE) for half a dollar. By checking the value of this coin on the market you will find that today’s unrealized profit of your 10 DOGE coins is $1, since you can sell them for $1.5.

Do you pay taxes on crypto gains?

Yes, cryptocurrency is taxed in the same way as stocks and other types of property. When making a profit after the sale or disposal of crypto, the trader is obliged to pay taxes on the amount of profit.

How can I avoid paying taxes on crypto?

There are several legal ways to evade taxes on cryptocurrencies. Crypto assets are not taxed if you do not sell them, but hold or give them as a gift to someone, for example, a family member. You can also move to an area where residents do not pay taxes, such as Puerto Rico. Still, if there is no legitimate reason not to pay taxes, you must pay them.

Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.

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