How to calculate profit and loss (PnL) in futures?

Understanding Futures PnL Basics

1. Profit and loss in futures trading is determined by the difference between entry and exit prices, multiplied by the position size. Unlike spot trading, futures allow traders to go long or short, amplifying both gains and risks.

2. The calculation differs slightly between USD-margined and coin-margined contracts. In USD-margined futures, PnL is settled in stablecoins like USDT, making it easier to track value changes.
3. For coin-margined futures, profits or losses are denominated in the base cryptocurrency, meaning the actual fiat value can fluctuate even after closing a position.
4. Traders must account for leverage, which magnifies both potential profits and losses. A 10x leverage means a 1% move in price results in a 10% change in equity.
5. Funding rates in perpetual futures contracts also impact PnL over time, especially for longer-term positions, as traders either pay or receive payments every 8 hours.

Calculating Realized and Unrealized PnL

1. Unrealized PnL refers to the current profit or loss of an open position, calculated using the mark price. It changes dynamically with market movements.

2. For long positions, Unrealized PnL = Position Size × (Mark Price – Entry Price). For short positions, it’s Position Size × (Entry Price – Mark Price).
3. Realized PnL is locked in when a position is closed. It is based on the actual fill price and includes fees and funding payments accrued during the trade.
4. In inverse futures, the formula adjusts for the contract’s denomination. For example, BTC-margined contracts express PnL in BTC, requiring conversion to USD for fiat valuation.
5. Exchanges typically display both realized and unrealized PnL in the user interface, helping traders monitor performance across multiple positions.

Impact of Fees and Funding on Net PnL

1. Trading fees are deducted upon order execution and reduce the net profit. Maker fees are usually lower than taker fees, incentivizing limit orders.

2. Net PnL = Gross PnL – Trading Fees – Funding Payments (if paid). If funding is received, it adds to the total PnL.
3. Funding payments occur every 8 hours in perpetual contracts and depend on the price difference between spot and futures. When the futures price is higher, longs pay shorts.
4. Frequent trading or holding positions across funding intervals can significantly affect profitability, especially in volatile markets.
5. Traders using high-frequency strategies must factor in cumulative fees, which can erode gains even with a positive win rate.

Frequently Asked Questions

How is PnL calculated for a short position in a USDT-margined contract?The formula is Position Size × (Entry Price – Exit Price). For example, shorting 1 BTC at $30,000 and covering at $28,000 yields a $2,000 profit before fees.

Does unrealized PnL affect my margin balance?Yes, unrealized PnL is added to or subtracted from your wallet balance in real time, directly impacting your available margin and liquidation risk.

What happens to PnL if my position gets liquidated?Upon liquidation, the exchange closes your position at the bankruptcy price, resulting in a realized PnL of zero. Your initial margin is lost, and the insurance fund may cover remaining deficits.

Can funding rates turn a profitable trade into a loss?Yes, especially in strong contango or backwardation. Holding a long position in a high-funding environment can result in net losses even if the price moves favorably.