Core Concepts and Formulas
Understanding how to calculate profit and loss (PnL) is essential for traders in expiry futures contracts. Below are the key terms and formulas:
Key Terms
| Term | Definition |
|---|---|
| Size | The number of contracts held in a position. For One-way mode, long positions are positive, and short positions are negative. For Hedge mode, both long and short positions are positive. |
| Entry Price | The average price at which a position is opened. It changes with added positions or reverse openings. Settlement replaces the entry price with the settlement price. |
Formulas
Entry Price Calculation
- Coin-margined contracts:
[
\text{Entry Price} = \frac{\text{Current Size} + \text{Added Size}}{\frac{\text{Current Size}}{\text{Entry Price}} + \frac{\text{Added Size}}{\text{Added Size's Entry Price}}}
] - U-stablecoin-margined contracts:
[
\text{Entry Price} = \frac{\text{Current Size} \times \text{Entry Price} + \text{Added Size} \times \text{Added Size's Entry Price}}{\text{Current Size} + \text{Added Size}}
]
Floating PnL
- Coin-margined contracts (Long):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times \left(\frac{1}{\text{Entry Price}} - \frac{1}{\text{Mark Price}}\right)
] - Coin-margined contracts (Short):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times \left(\frac{1}{\text{Mark Price}} - \frac{1}{\text{Entry Price}}\right)
] - U-stablecoin-margined contracts (Long):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times (\text{Mark Price} - \text{Entry Price})
] - U-stablecoin-margined contracts (Short):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times (\text{Entry Price} - \text{Mark Price})
]
Floating PnL Ratio
[
\text{Floating PnL Ratio} = \left(\frac{\text{Floating PnL}}{\text{Position's Margin}}\right) \times 100\%
]
Closed PnL
- Coin-margined contracts (Long):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times \left(\frac{1}{\text{Entry Price}} - \frac{1}{\text{Close Price}}\right)
] - U-stablecoin-margined contracts (Short):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times (\text{Entry Price} - \text{Close Price})
]
Settlement PnL
- Coin-margined contracts (Long):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times \left(\frac{1}{\text{Entry Price}} - \frac{1}{\text{Settlement Price}}\right)
] - U-stablecoin-margined contracts (Short):
[
\text{PnL} = \text{Face Value} \times |\text{Size}| \times \text{Multiplier} \times (\text{Entry Price} - \text{Settlement Price})
]
Realized PnL
[
\text{Realized PnL} = \text{Closed PnL} + \text{Settlement PnL} + \text{Trading Fee}
]
Realized PnL Ratio
[
\text{Realized PnL Ratio} = \left(\frac{\text{Realized PnL}}{\text{Closed Position's Margin}}\right) \times 100\%
]
Practical Examples
Example 1: Entry Price Calculation
Scenario (U-stablecoin-margined):
- Current Size: 10 contracts
- Entry Price: 100,000 USDT
- Added Size: 5 contracts
- Added Size's Entry Price: 160,000 USDT
[
\text{Entry Price} = \frac{(10 \times 100,000) + (5 \times 160,000)}{10 + 5} = 120,000 \text{ USDT}
]
Scenario (Coin-margined):
- Current Size: 10 contracts
- Entry Price: 100,000 USD
- Added Size: 5 contracts
- Added Size's Entry Price: 80,000 USD
[
\text{Entry Price} = \frac{10 + 5}{\frac{10}{100,000} + \frac{5}{80,000}} = 92,307 \text{ USD}
]
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Example 2: Floating PnL Calculation
Scenario (U-stablecoin-margined):
- Face Value: 0.01 BTC
- Size: 10 contracts
- Multiplier: 1
- Entry Price: 100,000 USDT
- Mark Price: 160,000 USDT
[
\text{PnL} = 0.01 \times 10 \times 1 \times (160,000 - 100,000) = 6,000 \text{ USDT}
]
Scenario (Coin-margined):
- Face Value: 100 USD
- Size: 1,000 contracts
- Multiplier: 1
- Entry Price: 100,000 USD
- Mark Price: 80,000 USD
[
\text{PnL} = 100 \times 1,000 \times 1 \times \left(\frac{1}{80,000} - \frac{1}{100,000}\right) = 0.25 \text{ BTC}
]
Example 3: Floating PnL Ratio
Scenario (U-stablecoin-margined):
- Floating PnL: 6,000 USDT
- Position's Margin: 1,600 USDT
[
\text{Floating PnL Ratio} = \left(\frac{6,000}{1,600}\right) \times 100\% = 375\%
]
FAQs
1. What is the difference between floating and realized PnL?
- Floating PnL reflects unrealized gains/losses based on the current mark price.
- Realized PnL includes closed positions, settlements, and fees.
2. How does settlement affect PnL?
Settlement replaces the entry price with the settlement price, locking in gains/losses for the position.
3. Why is the entry price recalculated when adding positions?
The entry price is averaged to reflect the new position's cost basis.
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4. How are fees factored into PnL?
Fees are deducted from the realized PnL, reducing the net profit (or increasing the net loss).
5. What is a good PnL ratio?
A ratio above 100% indicates strong performance, but it depends on risk tolerance and market conditions.
Note: Trading futures involves significant risk. Past performance is not indicative of future results. Always conduct thorough research and consider your financial situation before trading.