In the world of cryptocurrency trading, having a clear view of your financial metrics is more than just a convenience—it’s a necessity. From reconciling margin accounts to accurately tracking profit and loss in real time, a well-structured data system can drastically reduce errors and enhance decision-making.
Whether you're a fund manager, an auditor, or an operations specialist, understanding the structure of crypto assets and holdings—particularly regarding margin and derivatives—is critical for accurate bookkeeping and performance analysis.
In this guide, we break down two essential concepts: Cash Balance and Equity, and explain how Unrealized PnL (UPnL) is settled across different trading platforms.
Cash Balance vs. Equity: Core Definitions
At the heart of every trading account are two fundamental metrics: Cash Balance and Equity. While they are closely related, they serve different purposes and are used in distinct contexts.
What Is Cash Balance?
Your Cash Balance is the amount of actual currency or crypto assets held in your account at any given moment. This includes:
- Deposits
- Withdrawals
- Proceeds from spot trades
- Realized profit and loss (PnL)
It’s important to note that Cash Balance does not include Unrealized PnL.
What Is Equity?
Equity represents the total value of your account. It is a dynamic measure that incorporates both your current Cash Balance and any unrealized gains or losses from open positions.
The formula is simple:
Equity = Cash Balance + Unrealized PnL
Unlike traditional markets, nearly every cryptocurrency can be traded against another. This means each token or coin can be considered “cash” and has its own Cash Balance and Equity value.
Key Differences and Practical Use Cases
Although linked, Cash Balance and Equity play different roles:
- Cash Balance is relatively static. It only changes when you deposit, withdraw, pay fees, or realize a profit or loss.
- Equity is highly dynamic. It fluctuates with every market movement affecting your open positions.
This distinction influences how various team members use these metrics:
- Traders and Fund Managers (Front Office) often focus on Equity because it offers a real-time snapshot of portfolio performance.
Operations and Accounting Teams (Middle/Back Office) prioritize Cash Balance for accuracy in bookkeeping and reconciliation. They often rely on the formula:
Opening Cash Balance + Recorded Activity = Closing Cash Balance
This approach ensures data integrity and supports downstream financial reporting.
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How Unrealized PnL (UPnL) Is Settled
Unrealized PnL refers to the paper profit or loss from positions that are still open. The method and timing of settling UPnL into realized gains or losses vary by exchange.
Periodic Settlement (e.g., Deribit)
Some platforms, like Deribit, use a periodic settlement model. This means that at regular intervals (e.g., daily or hourly), unrealized gains or losses are converted into realized PnL and added to the Cash Balance.
Why exchanges use periodic settlement:
- Risk Management: Reduces systemic risk during high market volatility.
- Liquidity Flow: Allows users to withdraw profits more frequently.
- Margin Safety: Helps ensure accurate Equity calculations to avoid erroneous liquidations.
This method is also common in traditional markets, such as the CME (Chicago Mercantile Exchange), which uses daily mark-to-market settlement.
Real-Time Settlement (e.g., Binance)
Other major exchanges, including Binance, use a real-time settlement approach. In this model, UPnL is continuously calculated but not periodically converted into realized PnL until a position is closed.
Why some platforms prefer this model:
- User Experience: Avoids sudden balance changes due to fixed settlement times.
- Technical Efficiency: Reduces computational load from batch settlement processes.
- Trading Flexibility: Users can adjust positions without interference from periodic settlement events.
Best Practices for Data Reconciliation
Given these differences in settlement styles, fund operators and accountants must tailor their reconciliation processes accordingly.
Platforms like 1Token CAM offer solutions that normalize data across multiple exchanges. For instance, they may calculate real-time UPnL for platforms that use periodic settlement (like Deribit or Bybit), improving comparability and consistency in multi-exchange environments.
Accurate and frequent reconciliation is essential—not only for compliance and reporting but also for making informed strategic decisions.
Frequently Asked Questions
What is the difference between realized and unrealized PnL?
Realized PnL refers to profits or losses that have been actualized through closing a trade. Unrealized PnL reflects the current profit or loss of open positions that have not yet been closed.
Why does Equity change even when no trades are made?
Equity includes unrealized gains and losses, which fluctuate with market prices. So even if you aren’t trading, the value of your open positions—and therefore your Equity—can change.
How often should I reconcile my trading accounts?
Best practice is to reconcile Cash Balance daily. This helps catch discrepancies early and ensures your books are always accurate.
Can Unrealized PnL affect my ability to trade or withdraw?
Yes. Many exchanges use Equity (including unrealized PnL) to calculate your margin availability. A negative unrealized PnL could reduce your buying power or trigger margin calls.
Do all exchanges settle unrealized PnL the same way?
No. Exchanges like Deribit use periodic settlement, while Binance uses real-time calculation. It’s important to understand the rules of each platform you use.
What tools can help with multi-exchange reconciliation?
Specialized portfolio and accounting software—including systems like 1Token CAM—can aggregate data from various exchanges, normalize settlement methods, and provide unified reporting.
Understanding the nuances of exchange data—especially the relationship between Cash Balance, Equity, and Unrealized PnL—is foundational for anyone involved in crypto fund management. By leveraging the right concepts and tools, teams can achieve greater accuracy, reduce operational risk, and focus on what matters most: generating alpha.