Contract trading allows you to go long or short. When going long, a price increase generally generates profit, while a price decrease generates a loss; when going short, the opposite is true. Before calculating P&L, first confirm whether the contract is USDT-margined or coin-margined: not only are the settlement assets different, but the P&L formulas are also different.
The examples in this article use simplified calculations and do not take into account trading fees, funding fees, or other factors that may affect the actual result.
First, distinguish between unrealized P&L, realized P&L, and return on investment
Unrealized P&L is the estimated profit or loss based on a reference price while a position has not yet been closed. As the reference price changes, the displayed result also changes; it is not profit that you have already received.
Realized P&L is the profit or loss determined based on the actual execution details after a position is reduced or closed. When reviewing the final trading result, you must also take into account fees, funding fees, and other items.
Return on investment expresses the P&L as a percentage of the position margin and can be used to understand the impact of leverage on the P&L ratio. The examples in this article use:
Example return on investment = Example P&L ÷ Example position margin × 100%
The return on investment displayed on the platform may vary depending on the margin mode, increases or decreases in margin, fees, and the calculation methodology used.
USDT-margined contracts: P&L is calculated in USDT
For USDT-margined contracts measured by the quantity of the underlying asset, the P&L generated by price movements can be understood as follows:
- Long P&L = Quantity of underlying asset × (Calculation price − Entry price)
- Short P&L = Quantity of underlying asset × (Entry price − Calculation price)
During the holding period, the “calculation price” may be the reference price used to display unrealized P&L; when calculating the P&L generated by price movements after closing the position, the actual closing execution price is used. If the contract is measured in “contracts,” the quantity must first be converted according to the contract’s face value or multiplier.
- Long example: Assume that you go long 1 BTC at a price of 50,000 USDT, and the reference price subsequently rises to 51,000 USDT.
Unrealized P&L = 1 × (51,000 − 50,000) = 1,000 USDT
If the reference price falls to 49,000 USDT, the unrealized P&L is −1,000 USDT. Only after the position is actually closed can the realized P&L generated by the price movement be determined based on the execution price.
- Short example: Assume that you go short 1 BTC at a price of 50,000 USDT, and the reference price subsequently falls to 49,000 USDT.
Unrealized P&L = 1 × (50,000 − 49,000) = 1,000 USDT
If the price instead rises to 51,000 USDT, the unrealized P&L is −1,000 USDT.
Coin-margined contracts: P&L is calculated in the corresponding coin
Coin-margined inverse contracts are typically quoted in fiat currency, while P&L is calculated in the corresponding digital asset. Using a BTC/USD inverse contract with the contract value measured in USD as an example:
- Long P&L (BTC) = Contract value (USD) × (1 ÷ Entry price − 1 ÷ Calculation price)
- Short P&L (BTC) = Contract value (USD) × (1 ÷ Calculation price − 1 ÷ Entry price)
Here, “contract value” is the USD notional value corresponding to the example position. If the actual order is placed using a number of contracts, conversion must be performed according to the contract’s face value. The specific specifications of different coin-margined contracts are subject to the trading page.
- Long example: Assume that the position value of a BTC/USD inverse contract is 1,000 USD, you open a long position at 50,000 USD, and the reference price subsequently rises to 55,000 USD.
Unrealized P&L = 1,000 × (1 ÷ 50,000 − 1 ÷ 55,000) ≈ 0.001818 BTC
The price increase generates a profit, but the profit is expressed in BTC. To estimate its USD value at that time, you can convert it using the selected reference price; the converted result changes as the BTC price changes.
- Short example: Similarly, assume that the position value is 1,000 USD, you open a short position at 50,000 USD, and the reference price subsequently falls to 45,000 USD.
Unrealized P&L = 1,000 × (1 ÷ 45,000 − 1 ÷ 50,000) ≈ 0.002222 BTC
This also shows that the “price difference × BTC quantity” formula for USDT-margined contracts cannot be directly applied to coin-margined contracts.
Why does the return on investment change so much when the price moves only slightly?
This is because the return on investment is calculated using the position margin invested as the denominator, rather than the entire position value.
For example, assume that the value of a USDT-margined position is 1,000 USDT and the example margin is 100 USDT. If the price movement generates a profit of 10 USDT:
Example return on investment = 10 ÷ 100 × 100% = 10%
If 1,000 USDT is used as the margin, under the same assumptions of the same position value and the same 10 USDT profit, the example return on investment is 1%. A smaller margin amplifies the P&L as a proportion of the margin and also increases the risk of liquidation; a higher return on investment does not necessarily mean a higher actual profit amount.
What else should you pay attention to when viewing P&L?
- Unrealized P&L is not the same as the final amount received. The closing execution price may differ from the reference price shown while the position is held.
- P&L from price movements is not the result after deducting fees. Trading fees, funding fees, and other items may affect the final P&L.
- The return on investment is affected by changes in margin. Adding margin may change the denominator of the return on investment, but it does not directly change the P&L from the price movement of the same position at the same price.
- Pay attention to the unit of denomination for coin-margined P&L. The value of a profit or loss calculated in BTC after conversion to USDT or USD also changes as the coin price changes.