Recently, someone asked me what P&L means, and I realized that many new traders are not clear on this concept. So here it is.

Basically, P&L is Profit and Loss, your financial result in a trade. It sounds simple, but it’s the most important thing you need to understand if you want to know how you’re really doing in the market.

Let’s see how it works in practice. When your P&L is positive, it means you made money. Your trade generated more profit than it cost you to enter. It’s what we all want to see in our positions, right? On the other hand, when it’s negative, well, it means you lost. Your trade cost you more than you recovered.

Now, in the world of professional investing, bankers and big traders use something called P&L explained. Basically, it’s a detailed report that shows not only the final number but also what caused those changes day by day. That is, it explains why your portfolio went up or down.

The interesting thing is that P&L is calculated as the daily change in your portfolio’s total value. That is, you take the value you had yesterday, compare it with today, and that’s your result. Some traders calculate it with more complex formulas depending on their strategy, but the idea is the same: to understand exactly how much you gained or lost.

If you’re starting out in trading, what you should do is review your P&L regularly. Not just to celebrate profits, but to understand which trades work and which don’t. It’s the most honest metric you have.