A Practical Guide to PnL: Calculating Your Crypto Profits and Losses

Learn the essential difference between realized and unrealized PnL in crypto trading and how to calculate both to track your portfolio's true performance

In cryptocurrency trading, excitement often overshadows execution. Traders chase the next big trend, but frequently forget the most fundamental rule of investing: you must measure what you manage. The single most important metric for this is your PnL, or Profit and Loss.

Understanding your PnL isn't just about knowing if you're "up" or "down." It's about precision. Specifically, every trader must master the critical difference between realized and unrealized PnL.

Realized PnL: The Profit You Can Spend

Realized PnL is the most straightforward calculation. It is the profit or loss you "realize" or lock in when you close a position. When you sell an asset, the PnL becomes realized.

The simple calculation is: (Exit Price - Entry Price) x Quantity.

If you bought 1 Bitcoin at $60,000 and sold it at $65,000, your realized PnL is a $5,000 profit. This profit is now yours; it is decoupled from market volatility and represents the actual return on your investment. This is the number that matters for taxes and for measuring your concrete success.

Unrealized PnL: The "Paper" Profit

Unrealized PnL is the hypothetical profit or loss you would have if you sold your open positions right now. It’s often called "paper profit" or "paper loss" because it only exists on your screen.

The calculation is: (Current Market Price - Entry Price) x Quantity.

If you bought 10 Ethereum at $3,000 each and the price is now $3,500, you have an unrealized PnL of $5,000. This is exciting, but it is not profit. It is a potential. That number can (and will) change every second until you decide to sell and realize it.

Why This Distinction Governs Your Strategy

Confusing these two PnL types is a costly mistake.

Many traders see a large unrealized PnL and become euphoric, changing their strategy based on money they don't actually have. Conversely, seeing a large unrealized loss can cause panic selling, turning a temporary paper loss into a permanent, realized one.

A smart trader uses unrealized PnL as an indicator for when to act, but they use realized PnL as the scorecard for their strategy.

Platforms like Backpack Exchange are built to give traders a clear view of both metrics, helping them avoid emotional decisions. Having a dashboard that clearly separates what you could make from what you have made is essential for disciplined trading. Calculating PnL is the first step; understanding what it tells you is the key to longevity.

For a deeper dive into PnL calculations and their impact on your trading, explore the full guide on Backpack’s learning center.