Trading crypto can be easy if you know how to calculate unrealized and realized PNL (Profit and Loss) is crucial for managing your portfolio effectively and making informed trading decisions. In this article, we’ll dive into what PNL is, how to calculate unrealized and realized PNL. This will help you in making informed trading strategical decisions.
What is PNL in Crypto Trading?
Before we get into the nitty-gritty of calculating unrealized and realized PNL, let’s first define what PNL means in the context of crypto trading. PNL stands for Profit and Loss, which represents the financial result (s) of your trading activity.
If you sell an asset for more than you bought it, you’ve made a profit. If you sell it for less, you’ve incurred a loss. PNL is as simple as this. Now, let’s understand unrealized and realized PNL.
Understanding Unrealized PNL in crypto trading
Unrealized PNL refers to the profit or loss that exists on your trading panel (before the settlement), based on the current market value of an asset compared to its purchase price. It’s “unrealized” because you haven’t actually sold the asset yet; therefore, the gain or loss is not yet locked in.
For example, suppose you bought 1 Bitcoin at $30,000. If the current market price of Bitcoin rises to $35,000, your unrealized PNL would be $5,000. This is a potential profit that you could realize if you decided to sell the Bitcoin at this price.
Understanding Realized PNL
Realized PNL, on the other hand, represents the profit or loss you’ve actually made after selling an asset. Unlike unrealized PNL, realized PNL is concrete—it’s money that has either been gained or lost and is now reflected in your account balance.
For example, if you sold your Bitcoin when the price was $35,000, your realized PNL would be $5,000. This amount is now real and can be withdrawn or reinvested.
How to Calculate Unrealized PNL?
The calculation of unrealized PNL in perpetual trading is influenced by leverage and the mark price. The formula is:
Unrealized PNL = (Mark Price – Entry Price) * Position Size * Leverage
Step-by-Step Calculation Process
- Determine your entry price: The price at which you opened the position.
- Find the current mark price: This is the price used to avoid market manipulation.
- Calculate the difference: Subtract the entry price from the mark price.
- Multiply by the position size: The amount of the asset you are trading.
- Adjust for leverage: Multiply by the leverage used in the trade.
Example Calculation with Leverage
Let’s say you opened a 10x leveraged long position on 1 Bitcoin at $30,000, and the current mark price is $32,000. Your unrealized PNL would be:
(32,000 – 30,000) * 1 * 10 = 20,000 USD
The settlement amount may affect depending on the exchange fee*
How to Calculate Realized PNL in Perpetual Trading
Realized PNL calculation involves determining the actual profit or loss after closing a position, taking into account any funding fees.
The formula:
Realized PNL = (Exit Price – Entry Price) * Position Size * Leverage – Funding Fees
Step-by-Step Calculation Process
- Determine your entry and exit prices: These are the prices at which you opened and closed the position.
- Calculate the difference: Subtract the entry price from the exit price.
- Multiply by the position size: The number of assets you traded.
- Adjust for leverage: Multiply by the leverage used.
- Subtract funding fees: Include any fees paid during the time the position was open.
Example Calculation with Funding Fees
Assume you closed your 10x leveraged Bitcoin position at $32,000, which you opened at $30,000. If you paid $200 in funding fees during the trade, your realized PNL would be:
(32,000 – 30,000) * 1 * 10 – 200 = $19,800
Unrealized PNL vs. Realized PNL: Key Differences in Perpetual Trading
In perpetual trading, the differences between unrealized and realized PNL are more pronounced due to leverage and funding fees. Unrealized PNL reflects potential profits or losses based on current market conditions, while realized PNL is the actual profit or loss after a position is closed.
Impact on Margin and Liquidation Risk
Unrealized PNL directly impacts your margin balance, which can trigger liquidation if your position moves against you. Realized PNL affects your actual account balance and can be withdrawn or reinvested.
Factors Affecting Unrealized and Realized PNL in Perpetual Trading
Several factors can influence your PNL calculations in perpetual trading:
- Price Volatility and Liquidation: Sudden price swings can lead to rapid changes in your unrealized PNL, increasing the risk of liquidation.
- Leverage and Its Effects on PNL: Higher leverage magnifies both potential profits and losses, making precise PNL calculations critical.
- Funding Rates and Time Horizons: Funding fees accumulate over time and can significantly impact your realized PNL.
Common Mistakes in Calculating PNL in Perpetual Trading
Calculating PNL in perpetual trading can be complex, and mistakes can be costly. Common errors include:
- Misinterpreting Mark Price and Last Price: Always use the mark price for calculating unrealized PNL to avoid skewed results.
- Overlooking Funding Fees: Ignoring these fees can lead to an overestimation of your realized PNL.
- Ignoring Leverage Impact: Failing to account for leverage can result in incorrect PNL calculations.
Conclusion
Calculating both unrealized and realized PNL in crypto perpetual trading is essential for managing your trades effectively, especially when using leverage. By understanding these metrics, you can make informed decisions, avoid unnecessary risks, and maximize your trading profits.
Frequently Asked Questions
How is unrealized PnL calculated?
Unrealised PnL – Profit and Loss is the amount of money you have made or lost in an open position. This means that you have not booked your profit or loss yet, hence the PnL is unrealised. As soon as you close your position in profit or in loss, the status of that order changes to realized.
How to calculate PnL in crypto trading?
Realised PnL is calculated after you’ve closed your position — meaning you’ve sold the crypto. It only considers the actual selling price of your trade, without factoring in the current market price. For example, if you buy Solana (SOL) at $70 and sell it at $105, your realised profit is $35.
Is PnL the same as account balance?
Your account balance is your total funds, while PnL reflects gains or losses from specific trades. Unrealized PnL can affect your account value in real time (especially in margin or futures trading).
What factors affect my PnL?
Your PnL gets affected when the funding rates change. It also depends on whether or not you have closed your trade and market volatility.
