What is contract profit and loss

Source:https://www.gate.io/futures/USDT/BTC_USDT

Contract profit and loss refers to the profit or loss calculated based on the difference between the opening price and the closing price during the trading process. Understanding how to calculate contract profit and loss is crucial for traders, especially when using leverage, as the fluctuations in profit and loss can be very intense.

In the cryptocurrency market, perpetual contracts are a common derivative that allows users to take long or short positions based on market trends to make profits. Perpetual contracts are usually divided into two main types: USDT-margined perpetual contracts and coin-margined perpetual contracts. The profit and loss calculation methods for these two contracts are slightly different.

• U-based perpetual contract: profits and losses are measured in USDT, and all profits and losses and margins are settled in USDT.
• Coin-margined perpetual contract: Profits and losses are denominated in the underlying asset (such as BTC), and both profits and losses as well as margin are settled in the underlying asset. For example, in the BTCUSD contract, profits and losses as well as margin are all calculated in BTC.

Realized P&L and Unrealized P&L

1. Unrealized P&L
   Unrealized PnL refers to the profit or loss generated by contracts that users have not yet closed, and is estimated based on the difference between the current mark price and the opening price. Unrealized PnL will fluctuate with market price changes. It is important to note that unrealized PnL does not represent realized profits or losses, and the PnL can only be finally determined when the position is closed.

2. Realized Profit/Loss
   Realized profit and loss refers to the profit and loss realized by traders through closing operations. The actual profit and loss will only be settled when traders sell or buy contracts and complete the closing. Realized profit and loss includes all trading fees and funding costs, reflecting the actual trading results. Including but not limited to:

• Trading Fees: Each transaction requires payment of handling fees, which usually affects the actual results of profits and losses.
• Funding Fee: During the holding process, it may be necessary to pay or receive funding fees, which will also affect the final profit or loss.
• Leverage effect: When trading with leverage, the volatility of profits and losses will increase. The higher the leverage, the greater the changes in profit and loss.

Contract profit and loss calculation

Currently, Gate.io supports two types of perpetual contract: U-based perpetual contract and BTC-based perpetual contract. Users can choose to go long (buy) or short (sell) based on market trends to achieve profits. If the expected market price is going to rise, users can choose to go long (buy); if the expected market price is going to fall, users can choose to go short (sell). The calculation method of profit and loss will vary according to the type of contract, regardless of going long or short.

1. U perpetual contract profit and loss calculation

The profit and loss calculation formula for U-based contracts is as follows:

Profit and loss = Trading direction × Position size × Contract multiplier × (Closing price - Opening price)

Among them:

• Trade Direction: 1 for buy. -1 for sell.
• The profit and loss of the U-based contract is denominated in USD.
• Position size refers to the number of contracts you hold.
• The contract multiplier is a multiple set according to the specific rules of the contract. Among them, the BTC_USDT contract multiplier is 0.0001, which means 1 contract equals 0.0001 BTC, and the ETH_USDT contract multiplier is 0.01, which means 1 contract equals 0.01 ETH.
• The closing price and opening price are the prices at which you sell and buy contracts.

Example:

Assuming the user goes long 10 ETH_USDT contracts with 10x leverage in isolated margin, the opening price is 2500 USDT with a mark price of 2510 USDT.

• Unrealized P&L = 1 ×10 × 0.01 × (2510 - 2500) = 1.00 USDT

It is recommended to directly use the contract calculator on Gate.io.

Source:https://www.gate.io/futures/USDT/ETH_USDT

2. Coin-margined perpetual contract profit and loss calculation

The profit and loss calculation method of the coin-based contract is slightly different from the U-based contract. Taking the BTC-based contract as an example, the specific formula is as follows:

Profit/Loss (in BTC) = Trading Direction × Position Size × (1 / Average Entry Price (USD) - 1 / Exit Price (USD))

Among them:

• Trade direction: 1 for buy. -1 for sell.
• The profit and loss of the currency is valued in terms of the currency.
• Position size refers to the number of contracts you hold.
• The liquidation price and the opening price are the prices at which you sell and buy contracts, quoted in USD.

Example:

Assuming the user goes long on 3000 contracts in the BTC_USD contract, with an opening price of 50000 USDT and a closing price of 49500 USDT.

• Unrealized P/L = 1 x 3000 x (1/50000 - 1/49500) ≈ -0.000304 BTC

It is recommended to directly use the contract calculator on Gate.io for calculation.

Source:https://www.gate.io/futures/BTC/BTC_USD

Summary

Understanding the calculation method of contract profit and loss is crucial for traders to make wise decisions in the cryptocurrency market. By mastering how to calculate unrealized and realized profit and loss, traders can have a clearer understanding of the risks and potential returns of their positions. At the same time, rational use of leverage and control of trading costs can effectively enhance trading profitability.