What is profit in trading and how to calculate it – a complete guide

If you are engaged in cryptocurrency trading, you have definitely come across the term “profit”. But what is profit really, and why is it more important than it seems at first glance? Profit is a predetermined level of profit at which you exit a trade transaction. It’s not just a hope that the price will rise “someday”, but a specific goal that you calculate before buying each coin.

Profit Definition and Its Role in Trading

Beginners often make a common mistake: they buy a coin and just wait for its price to rise, without any plan. The result? They hang in the trade for weeks or even months, hoping that the market moves in their favor. This is the wrong approach.

Profit solves this problem. When you set your profit target in advance, you get several benefits. Firstly, you know exactly when to close the position – there is no uncertainty. Second, you can make many small trades with frequent profits instead of one big trade that may never work out. Thirdly, you either grow your portfolio of coins or increase the number of dollars – it all depends on your strategy.

Mathematics of Profit Calculation: Formula and Examples

Calculating profit is not at all complicated mathematics. Profit is expressed as a percentage of the price at which you entered the trade. Here’s a universal formula:

Target Price = Entry Price × (1 + Profit Percentage / 100)

Let’s look at practical examples.

The first example: You bought the coin for 1.000 USDT and want to make a profit of 0.5%.

Target Price = 1.000 × (1 + 0.5 / 100) = 1.000 × 1.005 = 1.005 USDT

This means that you are placing a sell order exactly at the level of 1.005 USDT. When the price touches this level, you will automatically exit the trade with the desired profit.

The second example: The entry price was 0.328 USDT, and you are planning a profit of 0.6%.

Target Price = 0.328 × 1.006 = 0.32997 ≈ 0.330 USDT

In this case, you exit at the price of 0.330. You see? Nothing complicated. Simply plug your numbers into the formula and get a target price to exit.

Optimal profit levels for different situations

But what level of profit should you focus on? It depends on the specific situation and how much risk you take.

If you need to avoid long “freezes” in a trade, set a profit in the range of 0.3-0.6%. It’s a conservative approach, but it ensures that you get out quickly.

If the coin you are investing in is very volatile and the price jumps frequently, you can increase the profit to 0.7-1.0%. Volatility works in your favor, and the price reaches the target level more easily.

If you place a profit above 1.5%, remember about the high risk. You may simply not wait for such growth, especially if the market is not growing or is in a sideways trend. This is the path to losses, not profits.

Risks of wrong profit and how to avoid them

What happens if you choose the wrong profit level?

If the profit is too small — for example, less than 0.2% — it may not even cover the exchange commission. You seem to have “earned”, but in fact you remained in the red or broke even.

If the profit is too large, you risk not waiting for the right price and being at a loss for several days while the market is slowly growing. Or the price may drop altogether and you will lose money.

If you don’t count the profit at all and just put orders “by eye”, it’s like going to an unfamiliar city without a navigator. You don’t know where you’re going, and you’re almost guaranteed to get lost.

Exchange fees are an often forgotten factor

Here’s a point that many beginners overlook. Any exchange, including large platforms, has a commission. Usually, this is approximately 0.1% for opening a position and 0.1% for closing. In total - 0.2%.

This means that your profit must be more than 0.2% to at least break even without losses. If you bet a profit of 0.5%, then after deducting the commission, your net profit will be about 0.3%. Don’t forget this when planning every deal.

Main conclusion

Trading is not intuition or gambling. These are mathematics and discipline. Before each trade, calculate the profit according to the formula. Do not put orders “by eye”. It is better to make five trades with a profit of 0.5% each, than one trade with a profit of 5%, which you simply cannot wait. Remember: small but frequent profits are the basis of successful trading.