P&L mechanics — where the money actually comes from

Why this lesson exists

If you can't compute your own P&L without looking at the platform's number, you don't really know what your position is doing. You're trusting a screen.

This lesson is short because the math is short. By the end, you'll be able to compute realised and unrealised P&L on any xtree position with a calculator, account for the 5 bps fee, and explain why a 10× position doesn't make 10× the money even though everyone on Twitter says it does.

This is the lesson that, internalised, kills the single most expensive misconception in retail crypto.

Unrealised vs realised

Unrealised P&L is what your position is worth right now if you closed it at the mid-mark. It's a number on a screen that moves as the mark moves. You haven't received any of it.

Realised P&L is what's locked in once you close. It's actual rupees that get returned to your free margin, minus fees.

The distinction matters because traders treat unrealised gains as money. They aren't. A trader long 1 BTC at ₹85,00,000 watching the mark tick to ₹86,00,000 has not made ₹1,00,000 — they have an unrealised position. If the mark moves back to ₹85,00,000 before they close, they've made nothing.

The most expensive habit in retail is using unrealised gains to justify more risk: "I'm up ₹1L, so I can afford to size up." That ₹1L isn't yours until you close.

The formula

For both directions:

P&L = (exit_price − entry_price) × position_size     (long)
P&L = (entry_price − exit_price) × position_size     (short)

Leverage does not appear in this formula. That's not an omission — leverage genuinely has no role in P&L computation. It only affected how much margin was locked up to put the position on.

For unrealised P&L, replace exit_price with the current mid-mark.

Worked example: the 10× misconception

You're long 0.5 BTC at ₹85,00,000 with 10× leverage. Margin locked: ₹85,00,000 × 0.5 / 10 = ₹4,25,000.

BTC mark moves to ₹86,00,000.

Unrealised P&L = (₹86,00,000 − ₹85,00,000) × 0.5 = ₹50,000.

Not ₹5,00,000. Not "10× because leverage." ₹50,000.

The "leverage amplifies returns" intuition is about return on margin, not rupees: ₹50,000 / ₹4,25,000 = 11.8% on the margin you locked. That's the only number leverage changed. The absolute rupees are determined by the size and the price move — period.

If you used 1× instead (margin = ₹42,50,000), the unrealised P&L would still be ₹50,000. The return on margin would have been 1.2%.

Why this matters in practice

Traders who believe leverage multiplies P&L will:

1. Size positions based on the leverage selector rather than the formula. They'll think 10× of "₹10,000 risk" is somehow safer than 1× of "₹10,000 risk." It isn't — the risk is the size × stop distance, the leverage is just the margin required.

2. Get caught off guard when their realised P&L is a tenth of what they expected. Then they decide they were "robbed" by fees or slippage, when actually they just misread the formula.

3. Use higher leverage to "make up" for losses, which puts them at a closer liquidation without changing the underlying expected value.

This connects directly back to leverage and liquidation: leverage's only mechanical effect is to bring the liquidation price closer. The P&L per rupee of price move is identical at any leverage.

Fees: 5 bps on notional, both sides

xtree charges 5 basis points (0.05%) on notional at both entry and exit. Notional, not margin. Leverage does not change the fee.

entry fee = 0.0005 × position_size × entry_price
exit fee  = 0.0005 × position_size × exit_price

Worked example. You're long 0.5 BTC entered at ₹85,00,000, closed at ₹86,00,000.

• Entry fee: 0.0005 × 0.5 × ₹85,00,000 = ₹2,125
• Exit fee: 0.0005 × 0.5 × ₹86,00,000 = ₹2,150
• Gross P&L: ₹50,000
• Net realised: ₹50,000 − ₹2,125 − ₹2,150 = ₹45,725

A trader using 50× instead of 10× pays exactly the same ₹4,275 in fees on this trade. The fee is determined by notional, not leverage. This is why high-leverage scalpers feel fees so acutely — the fees stay constant while their margin (and "account at risk") shrinks.

The full fee mechanics including funding are covered in Fees and funding on xtree.

Funding: a holding cost, not a P&L driver

Funding is the small payment between longs and shorts every 8 hours that keeps the perpetual price close to spot (see lesson 1.1). For computing P&L, treat it as a holding cost:

funding cost per window = funding_rate × notional

A typical neutral rate is 0.01% per 8-hour window. On ₹85,00,000 notional, that's ₹850 per window — ₹2,550 per day if you hold across all three windows. During strongly directional markets (the March 2024 BTC rally was one), funding can run 0.05% per 8h or higher — five times that cost.

Funding only matters for positions held across the 8-hour boundaries. Day-traders who close before the window rarely see it. Swing traders should always model 1–3 windows of expected funding into their target.

Common misunderstanding

"I'm down ₹20,000 unrealised but the position will come back, so I haven't lost anything."

The "haven't lost anything" part is technically correct — until you close, no realised loss is booked. But the assumption that the position will come back is doing all the work in that sentence, and it's exactly the assumption that turns ₹20,000 drawdowns into ₹50,000 drawdowns into liquidation.

Unrealised P&L is the truthful current value of your position. It isn't a "paper loss" any more than the previous unrealised gain was "paper money." Treat it as real. If the position thesis is broken, close it; if it isn't, hold it; but don't dismiss the drawdown because it hasn't been "locked in."

Recap

• Unrealised P&L is a live number; realised P&L is what's locked when you close.
• Formula: (exit − entry) × size for longs; flip the sign for shorts. Leverage doesn't appear.
• Leverage amplifies return on margin, not absolute rupees.
• Fees on xtree: 5 bps on notional at entry and exit. Same rupees regardless of leverage.
• Funding is a holding cost across 8-hour windows; model it for any swing trade.

Next up: Order types — when to use market, limit, and stop, and the news-day mistake that turns ₹5,000 stops into ₹50,000 losses.

Test yourself

Next lesson: Order types — market, limit, stop — when each is the right choice and which mistake costs traders the most on news days.