Encryption Perptual Futures Trading: Analyzing Profit and Loss Calculation and Hidden Risks

Perptual Futures are one of the most popular trading tools in the cryptocurrency derivatives market, but their profit and loss calculation mechanism is much more complex than it appears on the surface. This article will delve into the key concepts and potential risks involved in Futures Trading.

1. Profit and Loss Calculation Mechanism

Perptual Futures are divided into two main types: USDT margin ( forward ) contracts and coin-margined ( inverse ) contracts.

1.1 USDT margin ( long ) Futures Trading

This is currently the mainstream in the market, using stablecoins as margin and settlement currency, with profits and losses showing a linear relationship.

Unrealized Profit and Loss Calculation:

• Long: ( Mark Price - Opening Average Price ) × Position Quantity
• Short: ( Opening Price - Mark Price ) × Position Size

Realized Profit and Loss Calculation: ( closing price - opening average price ) × closing quantity - fees - funding costs

It is important to note that the transaction fees and funding costs are calculated based on the nominal value of the contract, rather than the margin amount. High leverage can significantly amplify the erosion of these costs on the margin.

1.2 Coin-Margin Margin ( Reverse ) Contract

Using the encryption currency for trading as margin and settlement currency, the profit and loss show a non-linear relationship.

Profit and Loss Calculation ( settled in currency ):

• Long: (1 / Closing Price - 1 / Opening Price ) × Position Size - Fees
• Short: ( / Opening price - 1 / Closing price ) × Position size - Fees

This structure creates an asymmetric risk exposure for traders, with longs more easily triggering forced liquidations when prices fall, while shorts are relatively safe when prices rise.

2. Implicit Risk Analysis

Mark Price vs. Last Trade Price

The exchange uses the mark price to calculate unrealized profits and losses and to trigger liquidation, while order execution is based on the latest transaction price. This dual price mechanism may result in:

1. Unnecessary stop-loss: Sudden price fluctuations caused by large orders or erroneous operations may trigger stop-loss, while the actual risk is not high.

2. Unexpected Liquidation: Even if the current trading platform price is stable, price fluctuations from other exchanges that make up the index may cause the marked price to reach the liquidation line.

2.2 funding fees

The funding fee is calculated based on the nominal value of the position and can quickly erode the margin under high leverage. For example, with 50x leverage, a funding rate of 0.01% every 8 hours could erode the margin by 15% within 10 days.

2.3 Chain Liquidation and Trading Slippage

Large leveraged positions being forcibly liquidated can trigger a chain reaction, resulting in significant slippage. This effect is more pronounced in times of insufficient liquidity.

2.4 Automatic Position Reduction ( ADL )

When the insurance fund is exhausted, the system will forcibly liquidate the most profitable reverse position to cover the losses. This means that even profitable traders may be forced to bear market risks.

3. Practical Case: BTCUSDT Trading Lifecycle

Assuming a long position of 1 BTC with 20x leverage when the BTC price is $60,000:

• Nominal Value: $60,000
• Initial Margin: $3,000
• Maintenance Margin: $240 (0.40%)
• Estimated liquidation price: around $57,240

Profit Scenario

BTC rises to $65,000:

• Unrealized Profit: $5,000
• Funding Fee: $6.50 ( assuming 0.01% )
• Fee: $62.50 for opening + closing position, 0.05% each time (
• Net Profit: $4,931

) Loss Scenario

BTC has fallen near the strong liquidation price:

• Position was forcibly liquidated
• Loss of the entire $3,000 margin

Conclusion and Recommendations

1. Fully understand the mark price mechanism, funding fee accumulation, liquidation logic, and ADL mechanism.
2. Avoid excessive leverage and control your position reasonably.
3. Use limit stop-loss instead of market stop-loss.
4. Continuously monitor the marked price and index composition.
5. Optimize the position structure and avoid peak funding fees.
6. Shorten the trading cycle in high volatility markets.

Although perpetual futures trading presents both opportunities and risks, it is still possible to achieve success in this market through a deep understanding of its mechanisms and reasonable risk management.