How to calculate Bithumb contract returns

How to Calculate Bithumb Contract ReturnsIntroduction

Bithumb, one of the largest cryptocurrency exchanges globally, offers a robust contract trading platform that allows traders to speculate on the price movements of underlying assets using futures contracts. Calculating the returns on Bithumb contracts requires an understanding of the contract's specifications and the associated fees. This comprehensive guide will provide a step-by-step approach to quantifying Bithumb contract returns.

Step 1: Understanding Bithumb Contract Specifications

• Contract Types: Bithumb offers perpetual contracts, commonly known as inverse swaps, which settle in Tether (USDT).
• Underlying Assets: Contracts are based on various cryptocurrencies, including Bitcoin, Ethereum, and altcoins.
• Leverage: Traders can utilize leverage to amplify their positions, ranging from 1x to 125x.
• Mark Price: The current estimated reference price for a contract, determined by the underlying asset's price on spot exchanges.
• Funding Rate: A periodic fee paid by long or short positions to maintain the contract's peg to the underlying asset's price.

Step 2: Determining the Contract Value

• Multiply the mark price by the contract size (usually 10 USD for Bitcoin contracts and 0.1 USD for altcoin contracts).
• For example, if Bitcoin's mark price is $20,000 and you have a contract size of 10 USD, the contract value is $200,000.

Step 3: Calculating Profit or Loss

• Profit or (Loss) = (Closing Price - Opening Price) (Position Size Leverage)
• If the closing price is higher than the opening price for long positions (or lower for short positions), the trader makes a profit. Conversely, they incur a loss if the prices move in the opposite direction.

Step 4: Accounting for Funding Fees

• Funding fees are applied every eight hours, and their impact on returns depends on the trader's position and the funding rate.
• If a trader holds a long position and the funding rate is positive, they pay the funding fee proportionate to their position size. Conversely, they receive the funding fee for short positions with positive funding rates.
• The funding fee is calculated as follows: (Funding Rate Contract Value Holding Period) / 8

Step 5: Subtracting Transaction Fees

• Bithumb charges transaction fees for both opening and closing positions, which vary based on the contract and market conditions.
• The typical trading fee for Bithumb contracts is 0.02% of the contract value, while maker fees are 0.015%.
• The transaction fee is deducted from the profit or added to the loss upon position closure.

Step 6: Converting to a Percentage Return

• To calculate the percentage return, divide the profit (loss) by the initial investment and multiply by 100.
• For example, if a trader invested $10,000 in a contract and made a profit of $1,000, their percentage return would be (1,000 / 10,000) * 100 = 10%.

Conclusion

Calculating Bithumb contract returns involves considering contract specifications, determining contract value, assessing profit or loss, accounting for funding fees, subtracting transaction fees, and converting to a percentage return. By meticulously following these steps, traders can accurately quantify their returns on Bithumb contracts and make informed trading decisions.