How to calculate the profit and loss of perpetual contracts?

In perpetual contracts, profit or loss is calculated based on the entry and exit prices, position size, and whether the position is long or short.

Nov 04, 2024 at 04:39 am

How to Calculate Profit and Loss in Perpetual Contracts

Perpetual contracts are futures contracts that do not have an expiry date. They trade constantly and settle in the underlying asset, which is often a digital currency. Profit and loss is calculated differently in perpetual contracts than in traditional futures contracts.

1. Determine the Entry and Exit Prices

• The entry price is the price at which you enter the contract (if you buy at the Bid price, and sell at the ask price, the difference of Ask and bid is the potential profit price).
• The exit price is the price at which you close the contract.

2. Calculate the Position Size

The position size is the number of perpetual contract tokens you trade. Make sure to convert the position size to the underlying asset (e.g., if the position size is 10 and the futures multiplier is $100, then the contract value is $10 * $100 = $1,000).

3. Calculate the Profit or Loss

• If you enter a long (buy) position, the profit or loss is: (Exit Price - Entry Price) * Position Size
• If you enter a short (sell) position, the profit or loss is: (Entry Price - Exit Price) * Position Size
• The result is in the underlying asset (e.g., BTC, ETH, etc.)

Example

Suppose you enter a short sol/usdt position with 10 contracts at $20. You close the position when sol/usdt is $15.

Calculation: (20 - 15) 10 $1 = -5 * 10 * $1 = -$50

Your profit or loss is -$50.
Position size is $1 * 10 = $10

Further Considerations:

• Funding rate: Perpetual contracts have a funding rate, which is a fee paid or received by traders to keep the perpetual contract price aligned with the spot price. This fee can impact profits and losses.
• Leverage: Perpetual contracts allow for leverage, which can amplify both profits and losses. Use leverage responsibly.
• Slippage: Slippage is the difference between the expected execution price and the actual execution price. This can impact the accuracy of profit and loss calculations.