For every investment made, there must be the hope of some profits. An investment done in unprofitable circumstances is sure to yield a resounding loss. And, a poorly prepared investor will quickly find out that making apt calculations is as crucial to successful investment as using the right strategies.
It’s no mean feat to earn steady profits with cryptocurrency investments. The extant market volatility is a surety that investors can never be fully certain of the outcomes of investments. Even with the most enlightening strategies, it is easy to fall afoul of the most basic principles.
Calculating your crypto profits and losses is a great way to enhance your portfolio, taking stock of what went wrong and what could work better in the future.
How to Calculate Crypto Profits
As a crypto investor, there are several ways to gain profits. As a miner for a proof-of-work blockchain, you can earn profits by providing computing power to the network, powering the blockchain, and validating transactions.
In addition, well-placed long-term investments can yield substantial profit. Also, crypto traders who study the charts and consistently make profitable trades are on the right path. Another popular method of earning crypto profits is hedging.
To calculate your crypto profits, you can employ simple arithmetic strategies. However, there are a number of considerable factors to analyze before calculating losses and gains.
In this piece, you’ll learn about these critical factors and the best ways to note your profit and loss margins. Read on and learn more.
Simple Math
To calculate your crypto profits, you don’t need fancy charts or formulas to calculate your profits. You only need the basic profit-loss formula that applies in simple arithmetic. That is to say that profit equals buying price minus selling price.
Here are a few of the side-along determinant factors:
- Gas fees
For developers and users of Ethereum, using the network to create Dapps costs a token-gas fee.
As one of the fastest-growing decentralized platforms that use smart contracts, the Ethereum blockchain plays host to many other ecosystems and tokens. Summarily, gas fees are compulsory for Ethereum investments.
So, if you happen to be investing in an ERC-20 token, you should expect to pay gas fees. These fees should always be weighed against your investments to know precisely how much you’re earning or losing per investment.
- Exchange fees
When trading on various exchange platforms, you should also take note of the fees per transaction. On platforms like Coinbase, the fees vary per user tier. You should note the tier you’re on and tailor your investment to take advantage of discounts or avoid overwhelming losses.
- Investment Charges
Asides from gas and exchange fees, other investment fees may also apply. Defi apps, in particular, have several structures that often require different charges. If you delve into a new investment scheme without aptly researching the fees involved, you’ll suffer huge losses.
You have to use a base fiat currency like the US dollar or the Euro to calculate your crypto profits.
Here’s an example:
An investor buys crypto assets worth $20,000, selling them on for $60,000. Here, the arithmetic formula will be applied to calculate the profits, ie., selling price minus cost price. In this instance, the investor has made a profit of $40,000.
However, the profit margin deduced in the preceding paragraph is only a gross estimate. To ascertain the net profits, you’ll have to deduct other depreciations including the various fees accrued per transaction.
These trading fees apply when you do transactions on various platforms involving swap trades, liquidity, and other transactions.
To determine the net profit, you’ll have to exclude all of these additional charges. That is to say that the net profit equals total profit minus depreciations (additional transaction fees).
Profit Calculators
A crypto profit calculator is highly useful for traders who want to track their crypto portfolio.
These are simple and straightforward tools that help investors to determine loss and profit rates. Platforms like CoinStats are useful for investors that consistently look to keep abreast of their investment statuses.
Here are two calculators that you might be interested in:
- Sabe Calculator
This calculator is highly comprehensive and has additional elements to help you calculate your profits in a much better way. It has classes, additional tools, and tutorials for your digest. The loss and profit margins are deduced using CoinMarketCap prices.
- Easy Bitcoin Calculator
This is also an excellent tool possessing many of the former functions, enabling users to calculate their crypto losses and profits in minutes.
Crypto Profit and Loss: Factors to Consider
In calculating crypto profit and loss, it’s essential to factor in several metrics. Some of these values include:
- Average Cost and Selling Price
Considering market volatility, average selling and purchase price is essential in determining investment profitability.
If you like to buy a token at the floor price, you can expect to make a maximum profit whenever you decide to sell off the token. However, profit margins can be indeterminate at times, given the prevailing market volatility.
- Realized and Unrealized Profit
Realized profits refer to profits that you’ve already made on previous trades. On the other hand, unrealized gains refer to potential earnings from calculations made with existing market prices.
You should make allowances for unrealized and realized profits or losses if you’re making your profit and loss calculations.
Spreadsheets
Another efficient way to keep track of your crypto profits, earnings, and losses is to use a Google Spreadsheet or MS Excel.
As data analytics tools, these solutions can help you to monitor exactly how much you’ve been losing or earning since you started your investment journey. You can make entries based on the date you traded, the amount traded, portfolio coins, etc.
If you’re starting out with a few coins, then a spreadsheet is a great way to keep track of earnings. As market prices change daily, you’ll have to update the prices at the same rate. However, maintaining a spreadsheet with a widespread portfolio will be just as difficult.
This method is recommended for investors with a small number of tokens in their portfolios.
Why do you need to Calculate Crypto Profits and Losses?
Whenever you buy cryptocurrency tokens, you do so with real, fiat currency. In subsequent purchases, the selling price has to be higher than the price you bought the tokens. Otherwise, you’ll be making a loss.
This is why pre-calculations are so important. Without a solid knowledge of how much you expended in an investment, it will be impossible to determine how much of a profit or loss you’ve made.
Just as well, many investors make the error of waiting for too long before selling off tokens. If you’re using a long-term, patient strategy in your crypto investments, then this is fine. If not, you’ll be looking to make significant losses.
Conclusion
It’s all well and good to buy crypto at low prices and sell them when their prices spike. However, many other factors determine whether you’ll be making a handy profit or a wrecking loss.
The best way to stay in the green is to keep abreast of the best and latest technologies and trends, noting that the blockchain industry is still very much in its beta stages.
Also Read: 5 Do’s and Don’ts to Survive Crypto Market Crash
