Entry price and PnL (Profit and Loss)
Profit and Loss (P&L) is a crucial metric determining the financial outcome of trading positions. It is calculated based on the entry price and the current market price. There are three primary types of P&L: Unrealized P&L, Realized P&L and Closed P&L. Understanding these concepts is essential for managing risks and maximizing profitability.
Calculating the Average Price
At this stage, EVEDEX supports only a single position per contract, which can be either long or short. When traders adjust their position by buying or selling additional contracts, the average price is recalculated within that same contract. Consequently, all P&L calculations are based on this new average price.
The average price of an asset is calculated using the following formula:
Average Price = Total Coin Value / Total Coins
Where Total Coin Value is determined as:
(Quantity1 × Price1) + (Quantity2 × Price2) + ...
Example:
First trade: 0.5 BTC purchased at $15,000
Second trade: 0.2 BTC purchased at $14,000
Total Coin Value: (0.5 × 15,000) + (0.2 × 14,000) = 10,300
Total Coins: 0.5 + 0.2 = 0.7
Average Price: $14,714
Types of P&L
Unrealized P&L
Unrealized P&L represents the potential profit or loss of an open position. It fluctuates in real-time based on market price movements and is not finalized until the position is closed.
Unrealized P&L Calculation
For long positions:
Unrealized P&L = Quantity × (Last Price - Entry Price)
For short positions:
Unrealized P&L = Quantity × (Entry Price - Last Price)
Example:
A trader buys 0.5 BTC at $15,000. If the last market price is $15,500, then:
Unrealized P&L = 0.5 × (15,500 - 15,000) = 250 USDT
For a short position, if the trader enters at $15,000 and the market price increases to $15,500, then:
Unrealized P&L = 0.5 × (15,000 - 15,500) = -250 USDT (a loss of 250 USDT)
Realized P&L
Realized P&L indicates actual profits or losses from closed or partially closed trades, including fees and funding.
Example:
A trader initially holds 0.5 BTC at $15,000. They decide to sell 0.25 BTC at $14,000.
Position's P&L = 0.25 × (15,000 - 14,000) = 250 USDT
Opening fee: 0.25 × 15,000 × 0.02% = 0.75 USDT
Closing fee: 0.25 × 14,000 × 0.02% = 0.7 USDT
Funding fee: 2 USDT
Final Realized P&L = 250 - (0.75 + 0.7 + 2) = 246.55 USDT
The trader now holds 0.25 BTC. They decide to buy an additional 0.2 BTC at $13,500.
Opening Fee: 0.2 × 13,500 × 0.02% = 0.54 USDT
Updated Realized P&L = 246.55 - 0.54 = 246.01 USDT
The trader’s current position is 0.45 BTC, which is short. If the trader chooses to open long on 1 BTC, the existing short position on 0.45 BTC will be closed, and the Realized P&L will be calculated for the remaining 0.55 BTC in the long position.
Closed P&L
Closed P&L represents the final profit or loss once all positions are closed. It factors in all trading fees, funding fees, and executed orders.
Key Considerations in P&L Calculations
Leverage does not directly affect P&L amounts but changes the margin requirements.
Higher leverage decreases margin but increases risk.
P&L scales with position size and price movement.
Fee structures impact realized and closed P&L.
Leverage Impact on ROI
10x leverage: 250 USDT profit → 33.27% ROI
5x leverage: 250 USDT profit → 16.63% ROI
20x leverage: 250 USDT profit → 66.54% ROI
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