Doing Investment Planning
Profit/loss calculations become crucial if you are trading multiple cryptocurrencies. By knowing how much profit you might earn in a specific cryptocurrency, you can make more informed decisions. For this purpose, several tools are available that allow users to calculate potential profits or losses.
This also brings our attention to automated investment tools, such as DCA trading bots, which may offer insights into potential profits for a specific cryptocurrency with a given investment size.
In this article, we will explore various investment calculators that you can utilize to gain insights into profits and losses.
Utilizing Investment Calculators
Investment calculators allow users to calculate profit or loss by selecting the investment amount and sell price for any cryptocurrency. For example, if you select BTC, whose current price is $96,541.38, and set the sell price as $99,500, an investment amount of $500, and fees as $2, the estimated profit would be $13.3. The calculator is very useful for knowing the potential profits or losses you can earn when you invest a specific amount of money in a specific cryptocurrency.
The profit is calculated using this formula:
(InitialInvestment−InvestmentFee)∗(SellPrice/BuyPrice)−InitialInvestment−ExitFee
In our case:
($500−$1)∗($99,500.38/$96,541.38)−$500−$1=$13.3
Platforms like CoinStats provide a profit/loss calculator and allow you to connect your Binance portfolio so you can manage your assets easily.
The simple profit/loss calculator is typically limited to one-time investments and cannot estimate profit for DCA investments. In DCA, you purchase smaller amounts of crypto at regular intervals. Due to price fluctuations at each purchase, your average cost per unit changes over time, which impacts your overall profit or loss if you decide to sell. Therefore, calculating the profit for DCA investments requires an analysis that accounts for each purchase and its corresponding price.
Investment Calculations for DCA investments
While several tools are available that allow calculations for DCA investments, they often lack the comprehensive insights needed to evaluate potential profits. Auto-invest tools provided by some crypto exchanges are a better alternative, as they allow users to set automated recurring investment plans and often provide profit insights. Alternatively, you can manually calculate your DCA trading plan, though this may require more effort. By following a structured approach, you can estimate the potential profits of your DCA strategy effectively.
Example: Suppose you want to invest $500 over 5 weeks in BTC.
Week 1: BTC price = $90,090, and you buy 0.001111 BTC for $100.
Week 2: BTC price = $86,000, and you buy 0.001163 BTC for $100.
Week 3: BTC price = $87,000, and you buy 0.001149 BTC for $100.
Week 4: BTC price = $88,000, and you buy 0.001136 BTC for $100.
Week 5: BTC price = $86,000, and you buy 0.001163 BTC for $100.
After 5 weeks, the BTC price is now $96,000. Your investment is worth 0.005722 BTC or $549.312.
If you had purchased $500 BTC at the price of $90,090, you would have received 0.00555 BTC, which would now be worth $532.80.
In the case of DCA, the final profit is higher because you invested at times when the price was lower than the initial price. In your trading plan, you need to set lower price capture points (price levels where you expect to buy) and record how much BTC you would acquire at each price. Then, execute the strategy and record how much BTC you acquired and how much profit you earned. Use previous records to set new goals for the next trading plan.
By having the goals in mind, you can invest consistently when the price hits a low point and gradually acquire more BTC compared to a lump sum investment. DCA does not always yield better profits, but in most cases, it can reduce the impact of price volatility on your total investment.
Profit Calculation for Crypto Staking
Staking rewards are often dynamic, influenced by factors such as network usage, inflation rates, and overall crypto market conditions. That’s why the staking rewards calculators estimate your profit based on specific reward rates or APR rather than providing the exact profit amount.
Some calculators use information such as average price of crypto during the staking interval, your investment amount, and the APR or reward rate. For example, if you stake 0.3125 ETH (worth $1,000 at an ETH price of $3,200) for a 12-month duration at an APR of 3.3%, your estimated profit would be $33 after one year.
While no calculator is perfectly accurate, it’s recommended to utilize the tools that allow full customization of parameters such as APR, crypto price and staking duration.
Concluding Remarks
To make better investment decisions, you can utilize investment calculators and plan your future investments effectively. By understanding how much profit you can earn from specific cryptocurrency, you can allocate portions of your target investment to different crypto assets. Investment calculators provide insights into potential profits and help you evaluate different investment opportunities.
We recommend using tools that allow complete customization of input parameters so you can estimate profit for all possible scenarios. Interestingly, trading bots come with built-in profit calculators. So, if you are planning to do automated trading, make sure you read this article to learn more about that.