You have been crypto trading for a while now and don’t know how to calculate crypto profit? Do not worry, as we have you covered with the best ways of calculating profit.
From trading to long-term investment, your digital asset profits can accumulate in several ways.
Many people think that the calculation of gains from crypto trading is rocket science. It is relatively easy to calculate profit and loss and just employs simple math. However, there are some factors involved that you should consider before the calculation. This blog will tell you how you can calculate crypto profit.
Let’s find out!
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Simple Mathematics
Calculating profit is not rocket science; it is a basic concept of gains and losses in mathematics.
However, you need to know certain factors before calculating profit and loss. For instance, you need to know the currency’s market price, investment charges, gas fees, etc.
Use of Fiat Currency
People generally use fiat currency like the United States Dollar or Euros to calculate the cryptocurrency profits. Let’s review the basic fundamentals of calculation.
Calculating Total Profit
Suppose you bought 3 Bitcoins (BTC) for 30,000 USD and sold them for about 40,000 USD. This difference between selling prices and cost prices (entry price) of Bitcoins will help us ascertain our profits or losses.
- Here, Selling price of 3 BTCs = $40,000 and Cost price of 3 BTCs = $30,000
- Therefore, crypto profit = $40,000 – $30,000 = $10,000
This is the easiest way through which you can calculate cryptocurrency profit. However, the resulting answer is the gross (or total) profit; and not the net profit.
Net Profit
To determine net profit, you will have to subtract other associated costs incurred while trading crypto.
While trading on an exchange, they may demand a trading fee. This type of fee is charged on your total sales. Usually, this fee is charged when you do a transaction on the cryptocurrency exchange. Other circumstances include transferring cryptocurrencies to the customer or the liquidity provider.
Therefore, you will have to remove this exchange fee from your total gross profit to obtain net profit.
Let’s take the same example where your total sales were $40,000, and the gross profit was 10,000 USD. Assuming that the transaction fee is 3%, your net profit would equal gross profit minus the transaction fee.
- Here, transaction fee = 3% of total sales = 3% of $40,000 = $1200
- Finally, Net profit = Gross profit – trading fee = $10,000 – $1200 = $8,800
Crypto Profit Calculator
Using simple mathematics cannot be efficient for everyone, especially for investors investing in multiple cryptocurrencies. Multiple people utilize a crypto profit calculator to ascertain the profit and loss in this situation.
Sabe Calculator
One of the most popular calculators you can find on the internet is the Sabe calculator. It comes with various classes, tools, and tutorials that can assist you in calculating profit and loss within minutes.
You just have to type the number of cryptocurrencies bought, tokens, and their cost price. The calculator, by itself, calculates the profits and losses for you within a short time frame. The calculation is based on the prices mentioned at CoinMarketCap.
Easy Bitcoin Calculator
Similar to the previous tool, Easy Bitcoin Calculator assists investors in calculating their gains and losses on their Bitcoin investment.
You will first type the cost price, selling price, and the number of Bitcoin in your account. You can even add the transaction fee incurred. Finally, choose from the long and short methods offered by the calculator to ascertain your gains.
Unrealized Profit
Cryptocurrency traders may feel anxious to withdraw their profits from the market because of its volatile nature.
Therefore, many traders keep a steady eye on the market situations to know if they are gaining or losing their trades. However, a wise trader should not over obsess over the constant changes in the market situations, as it may keep them from seeing the whole picture.
How to Calculate Profit Using Unrealized Gains?
Assuming you buy cryptocurrency, such as bitcoin (BTC), for about 20,000 USD, just keep yourself updated about the market situation. If the price of BTC reaches 20,200 USD, you have already made a gain of 200 USD.
The prominent difference between the unrealized profit and subtraction method is that you have not actually sold your assets yet in this method.
However, it is also possible that the price of bitcoin (BTC) also drops. This usually happens when your buy order has a higher price value than your sell order. For example, you buy a cryptocurrency for 20,000 USD, but unfortunately, it drops to 18,000 USD. This would mean that you have lost 2,000 USD in your trade. This change in value may affect your profit and loss calculations.
Corresponding Percentage Profit Method
Most gains and losses made from cryptocurrency are expressed in percentages. Furthermore, calculating percentages can be a convenient method for most traders. If you notice a percentage increase, it means that you have made profits from crypto trading. The vice versa is also true.
The Calculation Process
Here is how you will calculate your gains using this method:
You will start by multiplying the entry price by the corresponding percentage expression. The percentage profits between 10% to 50% are given below:
- 1 for 10%
- 2 for 20%
- 3 for 30%
- 4 for 40%
- 5 for 50%
Let’s assume you again bought bitcoin (BTC) at an entry price of 20,000 USD. You desire to make a gain of 10% of the trade. Now, you will multiply this entry price with the corresponding percentage profit. In this case, you will multiply 20,000 USD (entry price) by 1.1 (10%).
You will get a result of 22,000 USD, where your invested capital is 20,000 USD, and the remaining 2000 USD is the 10% gain you made.
Similarly, if you want a 50% profit from the trade, you will multiply the invested capital by 1.5. For instance, 20,000 USD x 1.5 = 30,000 USD. Removing your capital from the total would give you the gains made. In fact, you can even calculate 100% gain by multiplying the invested amount by 2.
Use A Spreadsheet
Making a spreadsheet or a trading journal would greatly help you during your trading journey. This way, you can easily manage everything about your account, gains, and even losses you made from crypto trading.
Sections You Need
You can make separate sections to systematically organize your trading, such as:
- The list of the coins you traded
- The units traded
- The cost price of the coins
- The selling price of the coins
- The date you traded the coins
Once you complete the spreadsheet, check the entry price and selling price of each coin you bought. Just by checking the prepared spreadsheet, you can easily ascertain the gained or lost money.
Calculating Profits on Crypto Taxes
Like any other income, you have to pay taxes on your cryptocurrency gains. Many people consider gains from crypto trading as passive income, but the government agencies, financial and tax collecting agencies tax this type of income.
How to Ascertain Tax Liability?
Your tax liability can vary due to various factors. These may include:
- The area you are located in – Different countries have different taxation policies. Therefore, the taxed income is calculated based on these policies.
- The magnitude of the trading activity by the trader – An active trader may have more tax liability than a passive trader.
- The date when cryptocurrency was sold
- Value of the fiat currency during the time of sale or acquisition
Note that taxes are levied on the gains earned on the digital assets. If you look to calculate profits on a tax basis, deduct the cost basis from the proceeds. For example, if you have a cost basis of 5,000 USD and proceeds of 8,000 USD, then your gains would be 3,000 USD.
The government agencies will levy taxes on this 3,000 USD. Remember that only the net profits are eligible to be taxed and not the entire income or proceeds.
Other Factors
Your taxable income may also depend on how long you hold onto an asset. If you keep a cryptocurrency for a long duration, you will be charged with a relatively lesser tax liability. Conversely, holding a cryptocurrency for a short period would result in a higher tax liability.
Therefore, many veteran traders prefer to hold their crypto assets for longer durations than usual to deduct the taxes. As mentioned before, you will have a tax liability on the profits made. This results in traders not paying any capital gains tax if they experience a loss.
Using the Calculators
You can even use a crypto tax calculator to ascertain your tax liability. These types of calculators extract information and trade history from various exchanges and mining pools. This helps them to calculate a trader’s overall capital loss or gain. Traders can use this information to prepare tax reports and generate income.
Final Words
Cryptocurrency trading is a profitable profession for most people. However, it is a risky job due to the unpredictable and volatile nature of the market. That is why it is advisable for every trader, especially new entrants, to calculate their profits and losses with care.
The free online profit calculators may come in handy as they help calculate the profits within a matter of a few minutes.
