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Trading with cryptocurrencies can be challenging and risky without proper analysis. The best way to analyze your future investment performance is by calculating crypto ROI or Return of Investment. Like in stocks and other investments, ROI is a crucial tool to see whether you will get a positive turn and make a profit. Here is how to calculate crypto ROI.
What Is the Return of Investment and How to Calculate One for Crypto?
Return of Investment or ROI is defined as the percentage of growth or loss of the investment. By measuring ROI, you can see how much money you could earn or lose when investing in some asset. The ROI is a percentage that is calculated by dividing the investment’s profit or loss by the initial cost of investment. But first, you need to calculate the net income by subtracting the initial cost of your investment from the value you gained. Then you divide this number by the cost of the initial investment, which is ROI.
Positive and Negative ROI
When calculating the ROI, there are two outcomes you can expect to get: the first one is positive, and the second one is a negative ROI. The positive ROI means that your net returns exceed the investment costs. On the other hand, negative ROI means net returns are low, meaning the total costs are higher than the return.
Crypto ROI Calculator
As with any investment, you can calculate the ROI when trading with crypto assets. You can do this simply by reducing the original price of the crypto by its selling price. Then you need to divide this result by the actual cost of the investment. Let’s see this in the example. If you buy a crypto asset for $5,000 and sell it for $20,000, this means ROI is 3.0, or you received three times (300%) of your initial investment.
Is ROI an Ideal Metric?
Even in the world of finance, where you trade with stocks and other assets, #ROI is not an ideal metric that can show you whether your investment will be profitable. The same goes when trading with crypto. There are other factors you need to consider when investing in cryptos, such as transaction fees, trading fees, and other fees you may encounter on different platforms. Time is also an essential factor that the ROI calculation doesn’t consider in crypto trading. So if you want to know whether your investment will be profitable, you need to research deeper and see how that crypto behaved in the past or what progress that crypto made in the past years.
