How do you calculate profit and loss in crypto futures trading?

Crypto futures allow leveraged bets on price moves, with P&L depending on contract size, entry/exit prices, fees, and funding rates—critical to distinguish linear vs. inverse calculations.

Aug 12, 2025 at 12:07 pm

Understanding the Basics of Crypto Futures Contracts

Crypto futures trading involves entering into agreements to buy or sell a cryptocurrency at a predetermined price on a future date. Unlike spot trading, where you own the actual asset, futures contracts are derivative instruments. Each contract has a specified size, usually denominated in the base cryptocurrency (e.g., BTC or ETH) or in USD. The contract size is a critical factor when calculating profit and loss (P&L), as it determines the exposure per contract. For example, a BTCUSD futures contract might represent 1 BTC, while a smaller contract could represent 0.001 BTC.

The price of a futures contract is influenced by the underlying spot price, but it can also include a premium or discount based on market expectations, funding rates, and time to expiry. When you open a position, you are either going long (betting the price will rise) or going short (betting the price will fall). Your profit or loss is determined by the difference between your entry price and exit price, multiplied by the number of contracts and the contract size.

Calculating Unrealized and Realized P&L

In futures trading, P&L is divided into unrealized and realized components. Unrealized P&L refers to the profit or loss on open positions, based on the current market price. Realized P&L is locked in when you close a position. The formula for unrealized P&L depends on whether the contract is quoted in the base currency (inverse) or in USD (linear).

For inverse futures contracts, where the contract is settled in the base cryptocurrency (e.g., BTC):

• Long position: Unrealized P&L = Contracts × Contract Size × (1 / Entry Price - 1 / Mark Price)
• Short position: Unrealized P&L = Contracts × Contract Size × (1 / Mark Price - 1 / Entry Price)

For linear (USDT-margined) futures contracts, settled in stablecoins like USDT:

• Long position: Unrealized P&L = Contracts × Contract Size × (Mark Price - Entry Price)
• Short position: Unrealized P&L = Contracts × Contract Size × (Entry Price - Mark Price)

When you close the position, the unrealized P&L becomes realized, and the amount is credited or debited from your margin balance.

Impact of Leverage on Profit and Loss

Leverage allows traders to control a larger position with a smaller amount of capital. For example, with 10x leverage, a $1,000 margin can control a $10,000 position. While leverage amplifies potential gains, it also increases the risk of liquidation. The liquidation price is the price at which your position is automatically closed due to insufficient margin.

The actual P&L calculation remains the same regardless of leverage, but leverage affects the percentage return on your margin. For instance, if you open a long position with 10x leverage and the price moves 5% in your favor, your return on margin is 50%. Conversely, a 5% adverse move results in a 50% loss on your margin. It’s essential to monitor your maintenance margin and initial margin requirements, as exchanges use these to determine whether your position remains open.

Step-by-Step Example: Calculating P&L on a USDT-Margined Contract

Consider a trader who opens a long position in a BTC/USDT futures contract:

• Buys 2 contracts
• Contract size: 0.01 BTC per contract
• Entry price: $30,000
• Exit price: $32,000

To calculate the realized P&L:

• Total contract size = 2 × 0.01 = 0.02 BTC
• Price difference = $32,000 - $30,000 = $2,000
• Realized P&L = 0.02 × $2,000 = $400

If the same trader had gone short:

• Realized P&L = 0.02 × ($30,000 - $32,000) = -$400 (a loss of $400)

Now, suppose the position is still open and the current mark price is $31,000:

• Unrealized P&L (long) = 0.02 × ($31,000 - $30,000) = $200

This example shows how each variable directly influences the outcome. Always verify the contract specification on your exchange, as sizes and quoting methods vary.

Accounting for Fees and Funding Rates

Fees and funding rates are often overlooked but significantly impact net P&L. Exchanges charge taker and maker fees when you open or close positions. For example, a 0.05% taker fee on a $10,000 trade would cost $5. If you open and close a position, you pay fees twice.

In perpetual futures contracts, funding rates are exchanged between long and short holders every 8 hours. If the funding rate is positive, longs pay shorts; if negative, shorts pay longs. Suppose you hold a long position of $10,000 during a funding period with a 0.01% rate:

• Funding payment = $10,000 × 0.0001 = $1 (paid by you)

Over time, these payments accumulate. To compute net P&L:

• Net P&L = Realized P&L - Opening fees - Closing fees - Funding payments (if long) or + Funding payments (if short)

Neglecting these costs can lead to inaccurate performance assessment.

Common Mistakes in P&L Calculation

Traders often miscalculate P&L due to confusion between inverse and linear contracts. Using the wrong formula can result in significant errors. Another mistake is ignoring the mark price for unrealized P&L, instead using the last traded price, which may not reflect fair value.

Some traders forget to account for liquidation mechanics. If a position is liquidated, the realized P&L is based on the liquidation price, not the bankruptcy price. Also, partial closures require calculating P&L separately for each closed portion.

Always double-check:

• The settlement currency of the contract
• Whether the contract is inverse or linear
• The exact contract size
• Fee structure and funding schedule

Using a P&L calculator provided by the exchange or a trusted third-party tool can reduce errors.

Frequently Asked Questions

What is the difference between mark price and last traded price in P&L calculation?

The mark price is used to calculate unrealized P&L and prevent manipulation. It’s derived from the underlying spot price and funding rate, while the last traded price reflects actual transactions. Exchanges use mark price to determine liquidations and avoid unfair P&L fluctuations.

How do I find the contract size for a specific futures pair?

Visit the futures market page on your exchange and look for the contract specifications. This information is usually listed under “Details,” “Info,” or “Contract Specs.” The contract size is clearly stated, often in BTC, USD, or units of the base asset.

Can funding payments turn a profitable trade into a loss?

Yes. If you hold a long position in a high positive funding environment, the cumulative funding payments can exceed your price-based profit. Always check the historical funding rates before entering a long-term position.

Do I owe money if my futures position is liquidated?

On most major exchanges using cross or isolated margin, your loss is limited to your initial margin. You do not owe additional funds. However, in rare cases with undercollateralized positions or on certain platforms, clawback mechanisms might apply, though this is uncommon in regulated environments.