Understanding how profit and loss (P&L) are calculated is crucial before opening any trading position. This guide will break down the key variables and formulas used to determine your P&L for USDT-settled perpetual contracts, helping you manage your trades more effectively.
Introduction to P&L Calculation
In USDT perpetual contracts, all profits and losses are settled in USDT, providing a straightforward way to gauge performance without worrying about the volatility of the underlying asset. This differs from inverse contracts, where P&L is settled in the base currency like BTC.
Key factors affecting your P&L include entry price, position size, market price movement, leverage, and associated costs like trading fees and funding rates. We'll explore each of these in detail.
Average Entry Price
Your average entry price changes whenever you add to a position with a new order. This is calculated based on the total contract value and the total quantity of contracts.
Formula:
Average Entry Price = Total Contract Value in USDT / Total Contract Quantity
Total Contract Value in USDT = [(Quantity 1 × Price 1) + (Quantity 2 × Price 2) + ...]
Example:
Trader A holds a long position of 0.5 BTC with an entry price of $5,000. Later, they add 0.3 BTC at $6,000.
- Total Contract Value = (0.5 × 5000) + (0.3 × 6000) = 2500 + 1800 = 4300 USDT
- Total Contract Quantity = 0.5 + 0.3 = 0.8 BTC
- Average Entry Price = 4300 / 0.8 = $5375
This average price is used for subsequent P&L calculations unless the position is adjusted further.
Unrealized P&L
Unrealized P&L reflects the current profit or loss of an open position, fluctuating with the market price. It does not include trading fees or funding costs.
For Long Positions
Formula:
Unrealized P&L = Contract Quantity × (Mark Price - Entry Price)
Example:
Trader B holds 0.2 BTC long with an entry price of $7,000. If the mark price is $7,500:
- Unrealized P&L = 0.2 × (7500 - 7000) = 100 USDT
For Short Positions
Formula:
Unrealized P&L = Contract Quantity × (Entry Price - Mark Price)
Example:
Trader C holds 0.4 BTC short with an entry price of $6,000. If the mark price is $5,000:
- Unrealized P&L = 0.4 × (6000 - 5000) = 400 USDT
Important Notes:
- Leverage does not directly multiply profits or losses. It only affects the margin requirement. P&L is determined by position size and price movement.
- A larger position size or greater price change amplifies P&L.
- By default, unrealized P&L is based on the last traded price. Hover over the value to see P&L based on the mark price.
- Unrealized P&L excludes trading fees and funding costs.
Unrealized P&L Percentage
This metric shows the return on investment (ROI) for a position as a percentage, based on the margin used.
Formula:
Unrealized P&L % = [Unrealized P&L / Position Margin] × 100%
Position Margin = Initial Margin + Closing Fee
Initial Margin = (Contract Quantity × Entry Price) / Leverage
Example (Trader B):
- Unrealized P&L = 100 USDT
- Leverage = 10x
- Initial Margin = (0.2 × 7000) / 10 = 140 USDT
- Assuming a bankruptcy price of $6,300, Closing Fee = 6300 × 0.2 × 0.055% ≈ 0.693 USDT
- Position Margin = 140 + 0.693 = 140.693 USDT
- Unrealized P&L % = (100 / 140.693) × 100% ≈ 71.07%
Note: Higher leverage reduces the margin requirement, thus increasing the P&L percentage for the same profit amount, but the actual unrealized P&L in USDT remains unchanged.
Realized P&L
Realized P&L is the actual profit or loss when a position is fully or partially closed. It includes trading fees and funding costs.
Formula for Full Position Close:
Realized P&L = Position P&L - Open Fee - Close Fee - Total Funding Paid/Received
Example (Trader C):
Closes 0.4 BTC short at $5,000 (entry was $6,000). Paid $2.10 in funding.
- Position P&L = 400 USDT profit
- Open Fee = 0.4 × 6000 × 0.055% = 1.32 USDT
- Close Fee = 0.4 × 5000 × 0.055% = 1.10 USDT
- Realized P&L = 400 - 1.32 - 1.10 - 2.10 = 395.48 USDT
For partial closes, fees and funding costs are proportionally allocated based on the closed quantity.
Closed P&L
Closed P&L is the cumulative realized P&L for a position direction (long or short) during a session, updated in real-time as partial closes occur. It includes all trading fees, funding costs, and realized gains/losses.
Formula:
Closed P&L = Sum of Realized Position P&L - Trading Fees - Funding During Opening
Example (Trader C Partial Close):
Closes 0.3 of 0.4 BTC short at $5,000.
- Position P&L = 0.3 × (6000 - 5000) = 300 USDT
- Open Fee = 0.3 × 6000 × 0.055% = 0.99 USDT
- Close Fee = 0.3 × 5000 × 0.055% = 0.825 USDT
- Funding Paid = 1.50 USDT (estimated)
- Realized P&L = 300 - 0.99 - 0.825 - 1.50 = 296.355 USDT
If Trader C opens a new short of 0.2 BTC at $5,500, the closed P&L updates to include the new open fee.
Note: Closed P&L resets when the position direction changes (e.g., from short to long).
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Frequently Asked Questions
What is the difference between unrealized and realized P&L?
Unrealized P&L shows current profit/loss of open positions, excluding fees and funding. Realized P&L is the actual gain/loss after closing, including all costs. Monitoring both helps assess ongoing performance and final outcomes.
How does leverage affect my P&L?
Leverage magnifies both potential profits and losses by allowing larger positions with less capital. However, it does not change the unrealized P&L in USDT terms—only the percentage return relative to margin. Higher leverage increases risk significantly.
Why is my realized P&L lower than my unrealized P&L?
Realized P&L deducts trading fees (open and close) and funding costs, which are not included in unrealized P&L. These costs can reduce net gains, especially for frequent trades or positions held through multiple funding periods.
How are funding costs calculated and applied?
Funding rates are periodic payments between long and short traders based on the difference between mark price and spot index. Costs are accrued over time and deducted from realized P&L upon closing. Rates vary per market and can be positive or negative.
Can I see a history of my realized P&L?
Yes, most platforms provide a history tab showing realized P&L for closed positions, including detailed breakdowns of fees and funding. This helps review performance and optimize strategy over time.
What happens to P&L if I partially close a position?
For partial closes, unrealized P&L updates based on the remaining size. Realized P&L locks in gains/losses for the closed portion, with fees and funding costs allocated proportionally. The average entry price for the remaining position stays unchanged.