Understanding your profit and loss is fundamental to trading success. A P/L calculator helps you track individual trade performance, measure your overall returns, and identify what is working in your strategy. Without accurate P/L tracking, you are trading blind.
Basic P/L Calculations
Stock Profit/Loss
For long stock positions:
Long Stock P/L Formula
P/L = (Sell Price - Buy Price) x Number of Shares - Commissions
Example:
- Bought 100 shares at $50 = $5,000
- Sold 100 shares at $55 = $5,500
- Gross profit = $500
- Commission (both trades) = $2
- Net profit = $498
For short stock positions:
Short Stock P/L Formula
P/L = (Sell Price - Buy Price) x Number of Shares - Commissions
Example:
- Shorted 100 shares at $50 = $5,000 credit
- Covered 100 shares at $45 = $4,500 debit
- Gross profit = $500
Options Profit/Loss
Remember that options are quoted per share but sold in 100-share contracts:
Options P/L Formula
P/L = (Sell Premium - Buy Premium) x 100 x Number of Contracts - Commissions
Example:
- Bought 5 calls at $2.00 = $1,000
- Sold 5 calls at $3.50 = $1,750
- Gross profit = $750
- Commission = $3.25
- Net profit = $746.75
Percentage Returns
Dollar amounts only tell part of the story. Percentage returns let you compare trades of different sizes:
Return on Investment (ROI)
ROI Formula
ROI = (Profit / Initial Investment) x 100
Example:
- Initial investment: $5,000
- Profit: $500
- ROI = ($500 / $5,000) x 100 = 10%
Return on Risk
Measures return relative to what you risked:
Return on Risk Formula
Return on Risk = Profit / Amount Risked
Example:
- Risk on trade (if stopped out): $300
- Profit taken: $600
- Return on risk = 2R (2 times your risk)
Why R-multiples matter: Expressing returns in terms of risk (R) normalizes different trade sizes. A 2R winner is always twice your risk, whether you risked $100 or $1,000.
Key P/L Metrics to Track
Win Rate
Percentage of trades that are profitable:
- Win Rate = Winning Trades / Total Trades x 100
- Example: 60 winners out of 100 trades = 60% win rate
- Note: Win rate alone does not determine profitability
Average Win vs Average Loss
Compare the size of winners to losers:
- Average Win = Total Profits / Number of Winning Trades
- Average Loss = Total Losses / Number of Losing Trades
- Reward/Risk Ratio = Average Win / Average Loss
Profit Factor
Overall measure of trading system profitability:
- Profit Factor = Gross Profits / Gross Losses
- Above 1.0 = profitable system
- Above 1.5 = good system
- Above 2.0 = excellent system
Expectancy
Average amount you expect to make per trade:
Expectancy Formula
Expectancy = (Win Rate x Average Win) - (Loss Rate x Average Loss)
Example:
- Win rate: 50%
- Average win: $200
- Average loss: $100
- Expectancy = (0.50 x $200) - (0.50 x $100) = $50 per trade
Understanding Unrealized vs Realized P/L
Unrealized P/L (Open Positions)
Paper profits or losses on positions you still hold:
- Changes constantly with market prices
- Not locked in until you close the position
- Can turn from profit to loss (or vice versa)
Realized P/L (Closed Positions)
Actual profits or losses from completed trades:
- Locked in when you close the position
- What actually hits your account
- The only P/L that truly matters
Tax Considerations
P/L tracking is also essential for taxes:
Short-Term vs Long-Term Gains
- Short-term: Positions held less than 1 year (taxed as ordinary income)
- Long-term: Positions held more than 1 year (lower tax rates)
Wash Sale Rule
Cannot claim a loss if you buy the same security within 30 days:
- Loss is disallowed for current tax purposes
- Adds to cost basis of replacement shares
- Track carefully to avoid surprises at tax time
Using P/L Data to Improve
Analyze by Setup Type
Break down P/L by the type of trade:
- Which setups have the best win rate?
- Which setups have the best average winner?
- Which should you trade more (or less)?
Analyze by Time
Look at P/L across different time periods:
- Best and worst days of the week
- Performance by market session (morning vs afternoon)
- Monthly and quarterly trends
Analyze by Symbol
Track P/L for individual stocks:
- Which symbols do you trade best?
- Which should you avoid?
- Does your edge work better in certain stocks?
Automatic P/L Tracking
Pro Trader Dashboard automatically calculates your P/L for every trade and provides detailed analytics. See your win rate, average R-multiple, and performance by setup - all calculated for you.
Summary
Tracking profit and loss is essential for trading improvement. Calculate P/L for every trade using the basic formulas, then track aggregate metrics like win rate, profit factor, and expectancy. Look at both realized and unrealized P/L, and remember to account for commissions and taxes. Most importantly, use your P/L data to analyze what is working and what needs improvement in your trading approach.
Learn more: Position size calculator and why you should track your trades.