How to calculate AscendEX contract income

Calculating Contract Income on AscendEX

AscendEX, a renowned cryptocurrency exchange, offers a comprehensive suite of trading tools, including contract trading. Contract trading allows traders to speculate on the future price of cryptocurrencies using leverage, enabling them to amplify both profits and risks.

Understanding how to calculate contract income on AscendEX is crucial for effective trading strategies and risk management. Here's a detailed guide to assist you in accurately calculating your contract earnings:

1. Determine the Contract Type

AscendEX offers two primary contract types: futures contracts and perpetual contracts. Futures contracts have a predetermined expiry date, while perpetual contracts do not have an expiry date. The calculation of income differs slightly depending on the contract type.

2. Calculating Futures Contract Income

a. Formula: Income = (Final Price - Entry Price) Contract Size Multiplier

b. Definition of Terms:

- Final Price: The price at which the contract is closed.
- Entry Price: The price at which the contract was opened.
- Contract Size: The value of the underlying asset represented by each contract unit.
- Multiplier: A factor that amplifies the contract value to provide leverage.

c. Example:

- If you buy a Bitcoin futures contract with an entry price of $20,000, a multiplier of 10, and a contract size of 1 BTC. You close the contract when Bitcoin is trading at $22,000.

Income = ($22,000 - $20,000) * 1 BTC * 10
Income = $20,000

3. Calculating Perpetual Contract Income

a. Formula: Income = Funding Rate Contract Size Multiplier * Duration

b. Definition of Terms:

- Funding Rate: A periodic payment or fee exchanged between traders based on the market demand and supply of a contract.
- Duration: The period over which the funding rate is applied.

c. Example:

- If you hold a perpetual contract for 10 days with a contract size of 100 ETC, a multiplier of 10, and a funding rate of 0.01% per day.

Income = 0.01% * 100 ETC * 10 * 10 days
Income = 10 ETC

4. Consider Leverage and Margin

Leverage in contract trading is a double-edged sword. It can amplify both profits and losses. Hence, understanding how leverage affects your income is crucial.

a. Higher Leverage: Higher leverage increases the potential return but also magnifies the risk. A small price movement can result in significant gains or losses.

b. Lower Leverage: Lower leverage reduces both potential gains and losses. It is a more conservative approach, especially for beginners or risk-averse traders.

5. Understanding Funding Rates

Funding rates are critical in perpetual contract trading as they impact your income over time. Positive funding rates indicate that long positions pay a fee to short positions, while negative funding rates indicate the opposite.

a. Positive Funding Rates: If you hold a long position, you will pay a funding fee, reducing your income.

b. Negative Funding Rates: If you hold a short position, you will receive a funding fee, increasing your income.

6. Monitoring Realized and Unrealized P&L

a. Realized P&L: The realized profit or loss is the net gain or loss that has been locked in by closing a contract.

b. Unrealized P&L: The unrealized profit or loss represents the potential gain or loss if the contract was closed at the current market price.

7. Hedging Strategies for Contract Trading

Hedging strategies involve using offsetting positions to reduce risk. Two common strategies are:

a. Long and Short Strategy: This involves taking long positions in one contract and short positions in another to balance profits and losses.

b. Cross-Margining: This allows traders to use funds from other positions as collateral, providing greater flexibility and potential returns.