Trading cryptocurrencies on the exchange provides an opportunity for regular profit, but also carries high risks of losses. Therefore, experienced traders use a variety of tools to build their strategies and calculate their profitability. And PNL is one of the most important indicators that allows you to measure profit and loss in order to correctly evaluate the results of a trade.
How to use PNL on Binance
PNL (Profit and Loss) is a certain value that shows the difference between profit and loss in trading. To calculate it, you can use different initial data:
- one deal or open position;
- a series of executed deals (5, 10, 20, 100);
- all transactions for a certain period of time (week, month, year);
- deals opened according to one strategy.
Special PNL report is drawn up with such calculations, thanks to which a trader can determine the effectiveness of his trading, as well as the ability to make a profit.
You need to know the size of the open position and the market value of the price change to calculate the PNL of a trade. The actual profit or loss will be equal to the size of the position multiplied by the movement in points. And this calculation shows the results very accurately.
How PNL is calculated
You can calculate PNL on the Binance exchange using one of two formulas:
- If the trade was opened in Long: unrealized PNL = (Marking price – Initial buy rate) * Position size.
- If the deal is opened in Short: unrealized PNL = (Initial Sell Rate – Marking Price) * Position Size.
The tagging price is the value of the asset at the time of the close of the trade (or at the time of the PNL calculation).
Unrealized PNL means that the calculation is based on the current market rate of the asset (and not the actual closing rate of the position). It is such a floating indicator for an open position, which demonstrates how much you will earn (or lose) if you close the position right now. It is based on real-time value and does not include exchange fees.
The profit or loss will remain unrealized until you close the trade. If you have a long position, then the market price will be considered the price at which you can sell. In the case of a short position, this is the price at which you can buy to close the position. Accordingly, for a more accurate calculation, you need to take into account the exchange spread.
As soon as you close the position, the profit or loss is realized. That is, realized profit (realized PNL) is a metric that shows the profit or loss for a closed position. And it takes into account the commission of the exchange.
Calculating PNL when trading on the spot
The principle of such calculations is easiest to understand in the context of spot trading on the Binance crypto exchange.
For example, take the situation when you buy 10 BTC at the rate of $ 30,000 and sell them for $ 40,000.
Then the unrealized PNL = (40,000 – 30,000) * 10 = $ 100,000. This is the profit that you can get if you close the position.
To calculate the realized PNL, you need to subtract the commission from the actual transaction value. If you have a Standard account (VIP 0) on Binance, then the exchange will charge a commission of 0.1%. Then the calculation will look like this:
(30,000 * 10 * 0.1%) + (40,000 * 10 * 0.1%) = 300 + 400 = 700.
This means that the realized PNL = $ 100,000 – $ 700 = $ 99,300.
This is the net profit from the trade minus the commission. This value is sometimes referred to as “private PNL”. Also realized PNL means that it is calculated based on the actual closing price of the position (and not the current market rate).
The loss from a trade can be calculated in the same way. For example, you buy 10 bitcoins at $ 30,000 and sell them for $ 20,000.
Then the unrealized PNL = (20,000 – 30,000) * 10 = – $ 100,000. This is the loss that you get after closing such a deal.
In this case, the commission will be calculated as follows:
(30 000 * 10 * 0,1%) + (20 000 * 10 * 0,1%) = 300+200 = 500.
And this amount will be added to the loss.
This means that the realized PNL = $ 100,000 + $ 500 = $ 100,500. This is the net loss from the deal, taking into account the commission.
Profit and loss are calculated in the same way when opening positions in Short.
Calculating PNL for margin trading
Important! This section will only discuss how PNL is calculated when trading on Binance margin. You should first study the corresponding guide if you do not know what the peculiarity of such trading is, .
In the case of margin trading, the realized and unrealized PNL is multiplied by the leverage.
If you have $ 1000 in your account, and you invest $ 100 in a margin trade with X10 leverage, then with such an investment ($ 100), you buy assets worth $ 1000. Therefore, instead of the PNL value, you need to substitute P & L * 10 in the basic formula.
Accordingly, the calculation for a Long position will look like this: unrealized PNL * 10 = (Marking price – Initial buy rate) * Position size.
As an example, you can take a situation when you buy 10 LTC at the rate of $ 100, and sell them at $ 110.
Then the unrealized PNL * 10 = (110 – 100) * 10 = $ 100. This is the profit that you get when you close the deal. Thus, when the LTC rate rises to $ 110, you double the amount invested in this transaction.
A losing trade is calculated in the same way. For example, you buy 10 LTC at the rate of $ 100, and sell them for $ 90.
Then the unrealized PNL * 10 = (90 – 100) * 10 = –100 $.
This is the loss you will receive when you close the trade. And here you need to take into account that you have invested only $ 100 in this margin position, that is, your loss has reached the collateral amount. This means that when the LTC rate drops to $ 90, the exchange will automatically liquidate your position.
PNL calculation for futures contracts
Important! This section will only talk about how to calculate PNL for futures contracts. You should first study the corresponding guide if you do not know what futures are and how they work on Binance.
When calculating the PNL for futures contracts, keep in mind that the label price is a more accurate representation of the contract value than the futures market price. Therefore, the Binance exchange uses precisely the labeling price to protect traders from accidental liquidations, as well as to avoid market manipulation.
Therefore, the unrealized PNL for futures is calculated using similar formulas:
- For a Long position: Unrealized PNL = (Futures Marking Price – Initial Futures Buy Rate) * Position Size.
- For a Short position: Unrealized PNL = (Futures Initial Sell Rate – Futures Marking Price) * Position Size.
In addition, when trading futures, it is important to consider total margin collateral and liquidation threshold:
Collateral = initial collateral + realized PNL + unrealized PNL. If the sum of these three indicators exceeds the collateral amount, the position will be liquidated forcibly.
Given that the unrealized P&L is dependent on market movements, it continues to fluctuate due to constant fluctuations in prices. Accordingly, the margin balance also continues to fluctuate.
Only that part of the collateral that exceeds the initial loan amount + initial margin can be withdrawn from the account.
Binance Margin Calculator
To simplify the work of traders, the Binance exchange has created a special calculator that allows you to calculate the profit and loss (PNL) values, as well as the profitability of the transaction in % (ROE), even before opening orders. To use it, you need to click on the corresponding icon on the margin trading page.
In the window that opens, you need to enter the following data:
- Starting price;
- The final price;
- Initial amount;
- Borrow the amount (loan amount).
Then you can click the “Calculate” button to find out the PNL and ROE values.
Binance Futures Calculator
The Binance futures trading page also has a calculator function that calculates PNL and ROE, as well as initial margin.
To make calculations, you need to enter the following data:
- choose the type of position (long or short);
- enter entry and exit prices;
- indicate the number of assets in the transaction;
- select the size of the leverage (by moving the special slider).
After that, you need to click the “Calculate” button to find out the values of the initial margin, PNL and ROE.
Also, using this calculator, you can calculate the following indicators:
- target price – the rate, upon reaching which the planned profit will be received;
- liquidation price – the rate, upon reaching which the position will be liquidated forcibly;
- maximum opening – the amount for which a position can be opened;
- open price – the amount of funds that you need to have on the balance sheet to open a deal.
PNL Report for Series of Trades
If you have multiple open trades on Binance, then all of them will reflect the total unrealized PNL. As with a single trade, the term “unrealized” means that this is the amount at which you can close your trades at the moment.
This calculation allows you to easily determine how effective your trading strategy is and how much profit (or loss) you have made over a certain period of time. To do this, you need to calculate the arithmetic average of the realized PNLs for all trades.
For example, in a month you have made 5 trades with different PNL ratios: $ 10,000, – $ 12,000, $ 7000, – $ 3000, $ 5000.
Then the average realized PNL over this time period is calculated as follows:
(10,000 – 12,000 + 7000 – 3000 + 5000) / 5 = 1400.
Your net profit for the month was $ 1400.
Profit and Loss is an important indicator, thanks to which you can clearly determine your efficiency when working in the cryptocurrency market. It can be used for different types of trading on Binance (spot, margin, futures). At the same time, you can calculate your profit or loss both from one position and from a series of transactions over a long distance. Only a clear understanding of your results will allow you to effectively manage your own capital.
And if you don’t already have an account on the Binance cryptocurrency exchange, then you can create one for free right now. To do this, you just need to follow the link and fill in the required information.
Disclaimer: This article is not investment advice. Assess the risks yourself before making any investment decisions.