Calculation of profit in digital currencies
What it takes to calculate profit and loss in cryptocurrencies is mastery with numbers, in addition to that you should always keep in mind that your primary goal of cryptocurrency trading is to make profits.
Calculating how much you made and how much you lost helps you balance your portfolio, but this task is usually one of the most difficult things for traders to do. These scales will tip over after going through this article that will sort everything out, just read the information given here and implement it to get the best results.
Methods for calculating profit and loss in digital currencies
You can calculate how much you won and how much you lost while trading cryptocurrency using the strategies below:
1- Subtract the selling price from the cost price
This is one of the simplest ways to calculate profit and loss in digital currencies. All you have to do is subtract or subtract the amount you sold the coin from the amount you bought it for.
Let’s say you bought $10,000 in BTC and sold when it rose to $15,000. In this case, you need to subtract the cost price (the purchase price) from the selling price. That is, you will remove the cost price of $10,000 from the sale price of $15,000, and the remainder is $5,000, i.e. the profit.
You can also use the same form to calculate your loss. Let’s say you buy Bitcoin for $10,000, but it drops to $8,000. Perhaps you were afraid that the price would go down further, so you sold at that price, meaning you lost $2,000.
2- Use the unrealized profit
Cryptocurrency traders are sometimes eager to take profits and then exit the market due to its volatility. Constant monitoring of the market helps traders know if they are making profits or losing in their trades. However, obsession with the constant changes in the market may prevent the trader from seeing the full picture.
Let’s say you buy Ethereum (ETH) for $2,000, just watch the market. If the price of ETH goes up to $2,200, that means you made $200.
It is also possible for the price of Ethereum (ETH) to drop once your order is executed, and this happens most of the time when buy orders are higher than sell orders. If you buy ETH for say $2,000, and it drops to $1,800 after placing your sell order, that means you lost $200.
3- Use multiplication operations to get the percentage of profit
You can calculate the profit in cryptocurrencies by multiplying the price at which you bought (the entry price) by the corresponding percentage. The percentage of profits between 10% and 50% is expressed as follows:
Let’s say you buy Cardano (ADA) with an entry price of $2, and you want to make a 10% profit and then exit the market. What you will do is multiply your entry price, i.e. the price at which you bought your ADA, by the corresponding percentage of 10%. This will give you $2.2, where $2 is your capital and $0.2 is 10% of the profit you made.
4- Use a spreadsheet
You can organize all your profits and losses from cryptocurrency trading using a spreadsheet across sections such as:
The names of the currencies you traded
The amount spent on buying coins
How many coins did you sell?
Then check entry prices and sell prices to see if you made money or lost money.
5- Use digital currency calculators
Consider using some online cryptocurrency calculators to calculate cryptocurrency profit and loss, as this is the easiest, most efficient, and fast way.
The importance of calculating profit in digital currencies
The cryptocurrency market is based on buying low and selling high. This means that you need to monitor the market and price movements of each coin, and then attack when the price is low. Currencies that are on an upward trend will eventually go up in price, and this is when you should sell to make a profit.
But what is the importance of calculating profit in digital currencies? When you buy a cryptocurrency, you are spending your own money to acquire that asset. You can make a profit when you sell the asset at a higher price than the one you bought at, but if you do not calculate the potential profits that you will make, there is a possibility of selling at a lower price, which leads to a loss.
In addition, a common mistake made by both new and experienced traders is waiting too long before selling a currency. Unless you are using a buy-and-hold strategy where you leave your cryptocurrency for a few years before turning a profit, waiting too long can lead to a loss.
Buying low and selling high is good if you implement the strategy with discipline. If not, then it becomes easy to be tempted by the upward trend of a particular currency, only to fall into the waiting trap. This is a very risky strategy because the price may drop suddenly. Instead of making a profit, you will be stuck losing. If you set a selling price point too high, there is a chance that the market price will suddenly drop before you get a chance to sell. Here lies the importance of calculating profit in digital currencies. Sticking to a plan and a realistic price point is better than waiting for the price to hit the moon.
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