P & L

What Is Profit and Loss (PnL)?

Profit and Loss (PnL) refers to the net result of a trade or an account—how much has been gained or lost, expressed either as a monetary value or as a percentage of the invested capital. Think of it as a financial “report card.” In crypto markets, however, PnL calculations are influenced by factors such as trading fees, slippage, leverage, funding rates, and market making mechanisms.

For spot trading, PnL primarily comes from the difference between buying and selling prices. In derivatives trading, PnL is amplified by leverage and affected by holding costs like funding rates. In DeFi market making, PnL includes fee income but must also account for “impermanent loss” caused by price shifts.

How Is PnL Calculated in Crypto Investing?

For spot trades, PnL is typically calculated as: “Sell amount − Buy amount − Fees.” The unrealized PnL during holding periods is: “Current market value − Cost basis (including fees).” The PnL ratio is often expressed as “PnL ÷ Cost × 100%.”

Example: You buy 1 ETH at 2,000 USDT, with a purchase fee of 0.1%. The total cost is approximately 2,000 + 2 = 2,002 USDT. You later sell for 2,200 USDT, with a selling fee of around 2.2 USDT. Your PnL is about 2,200 − 2.2 − 2,002 = 195.8 USDT, and the PnL ratio is roughly 195.8 ÷ 2,002 ≈ 9.78%. If you’re still holding and haven’t sold, this 195.8 USDT is your “unrealized PnL.”

If you buy in multiple batches, you’ll need to combine costs first. The common method is using the weighted average cost: sum all purchase amounts and divide by the total quantity bought to determine your average position cost.

What’s the Difference Between Realized and Unrealized PnL?

Realized PnL represents gains or losses that have been locked in—for example, after closing part or all of a position. Unrealized PnL refers to paper gains or losses based on current market prices and may reverse if the market moves.

For instance, you buy BTC at 30,000 USDT; if it rises to 33,000 USDT but you haven’t sold, the 3,000 USDT per BTC difference is unrealized PnL. Once you sell some or all of your holdings, that portion becomes realized PnL. Note that funding rates and fees in derivatives directly impact realized PnL; even if prices remain unchanged, long-term holding can erode your returns due to these costs.

How Do Leverage and Funding Rates Affect PnL in Derivatives Trading?

Leverage amplifies both profits and losses. Essentially, it allows you to control a larger position with a smaller margin; for example, with 10x leverage, a 1% price move in the underlying asset theoretically results in a ~10% change in your position’s PnL (excluding fees and slippage). While leverage magnifies gains, it also increases risk—large adverse price moves can trigger forced liquidation.

Funding rate is a periodic settlement cost between long and short positions—similar to an overnight holding fee but determined by market demand and supply. If you hold a long position when the rate is positive, you pay the fee; if it’s negative, you receive payment. Over time, funding fees accumulate into your realized PnL and affect your final outcome.

Additionally, derivatives trading requires including opening/closing fees in your PnL calculation and paying attention to the quote currency (USDT-margined vs coin-margined contracts), as this affects your PnL units and liquidation price calculation.

Why Does Impermanent Loss Occur in Liquidity Provision?

Providing liquidity to an Automated Market Maker (AMM) means depositing two assets in a specified ratio according to pool requirements. As prices change, the pool automatically rebalances your asset quantities. Compared to simply holding tokens, this rebalancing can result in your total holdings being worth less—a phenomenon called impermanent loss.

Example: If ETH rises from 1,000 to 2,000 USDT, holding 1 ETH alone doubles your market value; but if you provided equal-value ETH and USDT to an ETH/USDT pool, your ETH amount decreases while your USDT increases—the total value may be less than if you’d just held ETH. However, you earn trading fees by providing liquidity; if fee income is high enough, it can offset impermanent loss and even yield net profit. When evaluating market making performance, always factor in fee income, token rewards, and net effect of impermanent loss.

How Do Fees and Slippage Impact PnL?

Trading fees are charged by exchanges on each transaction; frequent trading makes fees a significant part of overall PnL. Slippage is the difference between your intended order price and the actual execution price—common in fast-moving or low-liquidity markets—and can shrink expected profits or even turn winning trades into losses.

For example, trading small-cap tokens with low liquidity using a market order may result in execution several ticks away from the expected price—this hidden cost is slippage. During periods of high volatility with multiple simultaneous trades, accumulated fees can significantly affect breakeven points.

Practical ways to reduce these costs include using more limit orders, breaking up large trades into smaller ones, avoiding major news releases or extreme volatility windows, and paying attention to platform fee tiers and rebate policies.

How Can You View and Manage PnL on Gate?

On Gate, you can view PnL across account and trade pages and set up risk management tools for better control.

Step 1: Go to the asset page and enter “Profit Analysis” (actual name may vary) to see daily account-wide PnL curves and yield rates—helpful for tracking overall volatility and drawdowns.

Step 2: In “Orders—Spot Orders—Trade History,” view every buy/sell transaction along with associated fees. The asset holdings section shows each token’s floating PnL and cost basis for easy average cost checks.

Step 3: In “Contracts—Positions,” check unrealized PnL, realized PnL, liquidation price, and funding settlement records; in “Contracts—Orders—History,” cross-reference each trade’s PnL and associated costs.

Step 4: Enable tools like “Take Profit / Stop Loss” and “Planned Orders” when placing trades to preset exit conditions for each order and prevent uncontrolled losses.

Step 5: Use “Export Bill” or API data pulls to create trade logs in spreadsheets or third-party accounting tools for unified PnL calculation.

As of 2025, most major platforms offer robust account yield analysis and detailed contract position breakdowns; however, names and navigation paths may change over time—always refer to current platform prompts.

Practical Methods for Controlling PnL

• Position sizing: Limit single-trade risk to a small portion of your account (e.g., 1%–2%) by pre-setting stop losses.
• Risk-reward ratio: Set targets for each trade so potential gain outweighs potential loss (e.g., risking $1 to make $2), ensuring positive expected value over time.
• Scaling entries/exits: Build positions in batches and take profits incrementally to smooth out volatility impact on your PnL curve.
• Account segmentation: Divide your funds into long-term holdings, strategy trades, and experimental allocations to prevent conflicting timeframes from distorting overall results.
• Review process: Schedule regular reviews of win rate, risk-reward ratio, max drawdown, and mistake logs for data-driven rule adjustments.

Strict adherence is key for all these methods. If unexpected volatility occurs, reduce exposure or pause trading promptly to prevent small losses from becoming significant ones.

Common Psychological Traps Behind PnL Fluctuations

• FOMO (Fear Of Missing Out): Chasing prices out of anxiety worsens PnL outcomes; only enter trades within rule-based price zones.
• Loss aversion: Refusing to accept losses leads to holding losing positions too long—turning unrealized losses into realized ones; set stop losses with every order.
• Anchoring bias: Over-reliance on entry price as a “fair value”; use objective ranges and planned prices instead of emotional anchors.
• Gambler’s fallacy: Doubling down after consecutive losses hoping for recovery; reduce position sizes and extend observation periods—let data drive decisions rather than emotion.

Listing these biases as prohibited actions in your trading plan can help buffer your PnL during major market swings.

Summary of the PnL Framework

PnL is not just an outcome—it’s a methodology. By consistently tracking spot, derivatives, and market making results using unified criteria—including fees, slippage, funding rates, and impermanent loss—and combining these with account yield curves and drawdown data, you gain true insight into strategy performance.

A disciplined approach involves building reliable data exports from trading platforms and forming a workflow: set clear take profit/stop loss levels before entry; execute strictly according to rules after entry; review and refine post-trade. In crypto’s 24/7 highly volatile markets, risk control and disciplined execution usually determine long-term success more than chasing “perfect strategies.” All capital carries risk—only participate within your tolerance level and continually optimize your recordkeeping and risk management systems.

FAQ

What do risk-reward ratio and win rate mean—and how important are they for trading success?

Risk-reward ratio measures average profit per winning trade versus average loss per losing trade; win rate is the percentage of profitable trades out of total trades. Together they reflect true strategy effectiveness—even with just a 40% win rate, a risk-reward ratio of 3:1 can be consistently profitable over time. Beginners should prioritize improving risk-reward rather than chasing high win rates for more scientific strategy optimization.

Why does my account show unrealized losses even though I haven’t closed my position yet?

Unrealized (floating) PnL reflects theoretical gains or losses based on current market prices for open positions. Although you haven’t closed the trade, market fluctuations have already affected your account’s net value. These are paper losses—if prices rebound you may recover them; but if prices continue lower toward liquidation thresholds, losses become real. Regularly monitoring unrealized PnL helps you adjust risk proactively.

How do fees and slippage erode my profits?

Fees are deducted on every transaction; slippage is the difference between expected price and actual execution price—both directly reduce net profits. For example: If you make $100 on a trade but pay fees of $10 and incur $5 in slippage, your actual profit drops to $85. With frequent trading these costs compound significantly; use low-fee pairs on Gate or other major exchanges and trade during high-liquidity periods to minimize slippage.

Why does the PnL of a single trade show different numbers at different times?

Because PnL calculation involves multiple timestamps—unrealized (floating) PnL during holding (updates in real time), realized PnL after closing (locked-in result), plus final net after fees and funding rates are deducted. The same trade will show different figures before closing versus after closure; funding rates deducted every eight hours also impact daily performance. Focus on realized PnL as the true measure of performance.

How can I quickly assess if my portfolio is profitable or at a loss overall?

On Gate or similar exchanges’ asset overview pages, compare “Total Assets” with “Initial Investment” or check the “Account Yield Rate” percentage directly. Alternatively add up “Realized PnL” (actual withdrawn profits) plus “Unrealized PnL” (open positions). Exporting transaction records for Excel-based return calculations helps eliminate visual bias for smarter decisions going forward.