An important key to success for an investor or financial analyst is to be able to analyze financial data correctly. At this point, it is extremely important to know how PNL is calculated. The PNL formula lies behind the calculation in question. In this blog post we have prepared specifically for PNL calculation, which is one of the ways to understand investment performance, optimize strategies and capture market opportunities; We will explore what PNL means in the world of financial analysis while also addressing the question of how PNL is calculated. Let’s take a closer look at the PNL calculation concept that will help you take a step forward in the investment world.
What is PNL?
PNL is the abbreviation of the English term “Profit and Loss”. This term is used as “Kara ve Zaar” in Turkish. It is a criterion belonging to the financial world used when evaluating the result of an investment or commercial transaction. PNL allows investors and businesses to analyze their financial performance and develop their commercial strategies. Thanks to this analysis, the profit or loss to be incurred at the end of a transaction can be clearly seen.
In addition to the topic “How is PNL calculated?”, for comprehensive information about PNL, check out: What is Profit and Loss (PNL)? Importance of PNL in Your Investments
PNL is the basic tool for calculating profit and loss in financial transactions. It determines the net value obtained after the transaction and reveals whether financial strategies are successful or not. This provides important clues about how investment decisions should proceed in the future.
PNL is evaluated in two main categories: realized PNL and unrealized PNL.
- Realized PNL: This refers to the actual amount gained or lost after completing the purchase or sale of an asset. In other words, it is the amount of profit or loss that becomes clear when the transaction is completely closed.
- Unrealized PNL: It includes the profit or loss calculated on the current market value of a position that has not yet been closed. This type of PNL refers to situations when you are still holding an asset and its value increases or decreases according to market fluctuations. It represents future potential rather than an actual gain or loss and should therefore be monitored carefully against market movements.
Both types of PNL help investors make strategic decisions in portfolio management and provide critical data for continued financial health.
PNL Calculation Formula
The profit and loss calculation formula is a simple mathematical equation used to determine the net profit or loss obtained as a result of a financial transaction. In general, PNL is based on the price difference between the purchased and sold assets. The basic PNL calculation formula is as follows:
PNL formula = (Sell Price – Purchase Price) x Quantity
This PNL formula is used to calculate the total profit or loss obtained as a result of the purchase and sale of an asset. In addition, if the result is positive, it indicates a profit, if it is negative, it indicates a loss.
Of course, when viewed from the other side, the transaction fees requested on the platforms where investor transactions are made should also be taken into consideration. In this context, the profit and loss calculation is generally as follows in financial markets:
PNL = (Exit Price × Number of Units Sold) – (Entry Price × Number of Units Purchased) – Fees
Let’s explain it with a hypothetical example for a better understanding of the formula above.
For example, an investor sold 1 BTC for $ 100,000 and bought 1 BTC for $ 90,000. As a result of all these transactions, he paid a transaction fee of $ 100. At this point, PNL is $ 9,900. The full formula is as follows:
($110,000 x 1 BTC) – ($100,000 x 1 BTC) – $100 = $9,900
PNL Calculation Method
The PNL calculation method is divided into two: manual and automatic.
Manual PNL Calculation Method: This is the most traditional method in PNL calculation. In this method, the profit or loss of each transaction is calculated manually. Although it provides the opportunity to understand the transactions in more detail, it requires detail and attention. While it may be sufficient especially for small-scale investors, it can be a time-consuming process and increase the risk of making errors for those who make a lot of transactions.
Automatic PNL Calculation Method: With the spread of technology in the financial world, automatic calculation tools have found a wide area of use. These tools allow investors to calculate all their transactions faster and more accurately. They save time by instantly completing calculations, especially for large-scale investors. Automatic tools directly receive and analyze data, thus offering the advantage of being able to react instantly to market fluctuations.
ICRYPEX users can easily perform PNL calculations with the automatic calculation tools offered by ICRYPEX. The steps to be taken to learn the PNL value in ICRYPEX are as follows:
For spot transactions: Log in to your ICRYPEX account > Wallet > Profit and Loss
For futures transactions: Log in to your ICRYPEX account > Futures > Positions > PNL
Things to Consider for PNL Calculation
There are many points to consider when calculating PNL. If we want to summarize these in basic terms, they can be listed as follows:
- Entry and Exit Prices: The buy (entry) and sell (exit) prices for the asset being traded must be recorded correctly. PNL calculation is made based on the difference between these prices.
- Commission Fees: The commission fees received by the platform in buy-sell transactions directly affect PNL. If these costs are not taken into account, PNL may be calculated incorrectly.
- Spread (Buy-Sell Difference): The spread cost should be taken into account, especially when trading in markets with high spreads.
- Other Fees: Additional fees such as funding costs, daily interest for futures transactions or carrying costs should also be taken into account.
- Position Size: When calculating PNL, trading volume or position size should be taken into account. For example, the profit obtained from a 1-unit transaction will be different from the profit obtained from a 10-unit transaction.
- Leverage Usage: If you use leverage, profit and loss calculations are made on margin. Even small price changes can cause large PNL changes depending on the leverage ratio.
- Price Movements and Market Conditions: During periods of high volatility, it may be difficult to estimate profit or loss because prices change quickly. In illiquid markets, you may not be able to execute your transaction at the prices you planned, which may have an impact on PNL.
- Timing: Market conditions during the time period when the position is opened and closed affect PNL. For example, funding costs may be added when a position is left open overnight. As the transaction time increases, you should consider the carrying costs.
PNL Calculation Examples
PNL calculation may differ depending on the transaction to be made in the financial markets. ICRYPEX PNL examples are as follows:
PNL Calculation in Spot Transactions: Spot transactions include both realized and unrealized PNL values.
The realized PNL calculation formula in spot transactions is as follows:
(Sales average price) * (Sold Quantity) – (Purchase average cost) * (Sold Quantity)
The unrealized PNL calculation formula in spot transactions is as follows:
(Current Price) * (Crypto Asset Quantity in Wallet) – (Purchase Average Cost) * (Crypto Asset Quantity in Wallet)
PNL Calculation in Futures Transactions: Considering that both long and short positions can be opened in futures transactions, the PNL formula applied for these two types of transactions is different.
Futures The formula for long positions in transactions is as follows:
PNL (USDT) = (Closing Price – Entry Price) * Position Amount (USDT) – Funding Rate (USDT)
The formula for short positions in futures transactions is as follows:
PNL (USDT) = (Closing Price – Entry Price) * (-1) * Position Amount (USDT) – Funding Rate (USDT)
The explanations of the terms used in these two formulas are as follows:
Closing price: The investor’s average position closing price
Entry price: The average cost of the customer in the position
Position amount: The amount of crypto asset to be traded
Funding rate: The cost reflected while the position remains open
The PNL examples on the ICRYPEX side can be listed as follows. Now, let’s take a brief look at the dynamics between PNL and financial analysis, which is the last part of this content.
PNL and Financial Analysis
PNL and financial analysis are the basic elements that shape investment decisions. PNL not only calculates profits and losses, but also evaluates the effectiveness of strategic decisions.
The Role of PNL in Investment Strategies
PNL is a critical tool in determining which investment strategies are successful. While high PNL is an indicator of successful strategies, low values indicate approaches that need to be reviewed.
Risk Management and Performance Analysis
PNL analyses play a vital role in risk management. Realized and unrealized PNL evaluates the risks investors undertake and the management of these risks. A good performance analysis supports portfolio optimization by identifying profitable assets.
Importance of PNL in Portfolio Management
Portfolio-based PNL analyses enable investors to optimize their asset allocation. This helps make informed decisions about which investments to prioritize. PNL supports rational investment decisions with its strategic guiding role.
