PnL stands for "Profit and Loss" and can be either realized or unrealized. It describes the change in value of a trader’s positions. If you have open positions, your PnL is unrealized—meaning it fluctuates with market movements. Once positions are closed, unrealized PnL becomes realized PnL.
Realized vs. Unrealized PnL Explained
What Is Realized PnL?
Realized PnL is calculated based on your entry price and exit price. Since it reflects gains/losses from closed positions, it depends solely on executed order prices, not current market prices.
What Is Unrealized PnL?
Unrealized PnL changes continuously and is a key factor in liquidations. Market prices are used for accurate calculations, ensuring fairness. PnL is always denominated in the settlement currency.
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PnL Calculation Methods
Inverse Contract (Long Position)
Formula:
[ \text{PnL} = \text{Opening Value} - \text{Closing Value} = \left(\frac{\text{Contract Quantity} \times \text{Contract Size}}{\text{Entry Price}}\right) - \left(\frac{\text{Contract Quantity} \times \text{Contract Size}}{\text{Exit Price}}\right) ]
Example: Buying 1,000 BTCUSD contracts at $6,000 and selling at $7,000 yields:
[ \left(\frac{1000 \times 1}{6000}\right) - \left(\frac{1000 \times 1}{7000}\right) = 0.0238 \text{ BTC profit} ]
Inverse Contract (Short Position)
Formula:
[ \text{PnL} = \text{Closing Value} - \text{Opening Value} ]
Example: Selling 1,000 BTCUSD contracts at $6,000 and buying back at $5,000 yields:
[ \left(\frac{1000 \times 1}{5000}\right) - \left(\frac{1000 \times 1}{6000}\right) = 0.0333 \text{ BTC profit} ]
Linear Contract (Long Position)
Formula:
[ \text{PnL} = (\text{Contract Quantity} \times \text{Contract Size} \times \text{Exit Price}) - (\text{Contract Quantity} \times \text{Contract Size} \times \text{Entry Price}) ]
Example: Buying 500 ETHUSD contracts at $120 and selling at $130 yields:
[ 500 \times 0.005 \times 130 - 500 \times 0.005 \times 120 = $25 \text{ profit} ]
Linear Contract (Short Position)
Formula:
[ \text{PnL} = (\text{Contract Quantity} \times \text{Contract Size} \times \text{Entry Price}) - (\text{Contract Quantity} \times \text{Contract Size} \times \text{Exit Price}) ]
Example: Selling 500 XRPUSD contracts at $0.15 and buying back at $0.14 yields:
[ 500 \times 5 \times 0.15 - 500 \times 5 \times 0.14 = $25 \text{ profit} ]
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FAQs
1. Why does unrealized PnL matter?
It helps traders monitor open-position performance in real time, influencing decisions to hold or close trades.
2. How is realized PnL taxed?
Taxation depends on jurisdiction—often treated as capital gains. Consult a tax professional.
3. Can PnL be negative?
Yes, indicating losses. Negative unrealized PnL may trigger margin calls.
4. What’s the difference between PnL and ROI?
PnL shows absolute profit/loss, while ROI measures performance relative to initial investment.
5. How do fees impact PnL?
Transaction fees reduce net PnL. Always factor them into calculations.
6. Is PnL the same across all exchanges?
No. Contract specs (e.g., inverse vs. linear) and fee structures affect calculations.
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