The primary aim of cryptocurrency trading is to make a profit from an initial investment. To this end, millions of traders around the world are poring over charts for technicals and paying attention to breaking stories for fundamentals in an attempt to make profits.
Knowing how to find the patterns on the charts or being in the loop of breaking events is not enough to make a successful trader. Traders should be armed with
The knowledge of how to properly calculate their crypto profits as they maneuver through the volatile markets. This skill is indispensable whether you’re a day trader, scalper, hodler, or someone who is testing the waters.
Calculating crypto profits isn’t as complex as flying an airplane but before we begin punching our calculators, we need to understand the concept of cryptocurrency profits.
Understanding Cryptocurrency Profits
Cryptocurrency profits from trading are similar to regular profits made in any business venture. They are the gains made after subtracting your initial purchase price of the cryptocurrency from the amount that you sold it.
For example, assume that an investor bought BTC worth $10,000 and sold all the holdings for $20,000 after 12 months. The profits realized on that trade is $10,000 and this is calculated by subtracting $10,000 (purchase price) from 20,000 (selling price).
In the example above, this kind of profit is referred to as the gross profit and does not take account of the ancillary expenses or fees involved in facilitating the transactions. Certain fees are charged that eat into the gross profits like trading fees regularly billed by exchanges. Factoring in these fees would give you a clearer position of the true state of your profits known as the net profit.
Calculating the net profit is simply Gross Profit minus ancillary fees.
Another important factor to pay attention to is unrealized profit. Unrealized profits are the gains made by a cryptocurrency trader that has not yet been sold. These gains are often referred to as floating gains and can be calculated throughout the formula below.
Present Market Value – Historical Value = Unrealized Loss
Why Should We Calculate Crypto Profits
There are several reasons why traders should calculate their crypto profits and they include;
Profits from dabbling in cryptocurrencies are often taxable in certain jurisdictions. Failure to file your taxes from crypto profits leads to penalties like payment of fines or even jail time. Generally, crypto taxes are paid on only profits, particularly on net profits.
2. To Test Out Your Trading Strategy
Whether you’re a scalper or a long-term hodler, calculating your crypto profits will help in gauging whether your crypto trading strategy is the right one for you. If you’re not making profits, you can always tweak your strategy to adopt a new strategy to cut your losses.
Calculating Cryptocurrency Profits Using Spreadsheets
For many crypto traders, the use of Google Sheets or Microsoft excel is a sure-fire way for them to calculate their profits. Using a spreadsheet might seem a bit daunting for investors at first because it requires traders to manually input all the data and constantly update the prices.
Traders are required to fill in their entry price, current market price, number of coins and a formula for calculating profit. This method of calculating crypto profits increases in severity as different cryptocurrencies come into the picture. However, calculating crypto profits using spreadsheets is ideal when a few crypto assets are being tracked.
Using Cryptocurrency Calculators
In today’s fast-paced world, the easiest and most efficient way to trade cryptocurrencies is through the use of crypto trading calculators. Traders simply have to input the type of coin that makes up their portfolio and fill in the buy price, amount of money invested, and the selling price. The cryptocurrency calculator automatically calculates the expected profits for traders at the push of a button.
There are several profit loss calculators available to traders in the space with different functionalities in the market. The dizzying array of calculators in the space might make it difficult for you to make the choice of the perfect calculator.
CoinStats cryptocurrency calculator is one of the calculators that is carving a name in the industry with stellar features for investors. It is loaded with impressive features like automatically recording the prices of cryptocurrencies and is compatible with thousands of cryptocurrencies.
CoinStats crypto calculator goes the extra mile to factor in the metrics of investment and exit fees that are necessary for the accurate calculation of net profit. The icing on the cake is the ability to integrate all your portfolios and wallets to get accurate and timely alerts about your holdings sent straight to your device for free.
For traders interested in percentage profits, the CoinStats crypto calculator also generates results in percentages. This is important for traders that make use of percentages as a key metric in their trading strategy.
Other top crypto calculators in the space include the CoinDesk cryptocurrency calculator, Binance Futures Calculator, Altrady calculator, and the Easy Bitcoin Calculator.
Accurately calculating cryptocurrency profits or losses is indispensable in crypto trading today. The benefits are immense as they help in filing taxes and giving a bird’s eye view of the efficiency of their trading systems.
Profits can be calculated manually using the formulas stated above in their most basic form. As trading grows in complexity because of a wider pool of assets, investors can deploy additional methods to calculate their profits.
Traders can decide to use spreadsheets to calculate their profits or use the intuitive process of crypto calculators to gauge their gains or losses. No matter the method that is chosen, the bottom line is to accurately keep an eye on how your strategy performs in the face of prevailing market circumstances.