How to calculate CoinW contract returns

Understanding contract types, such as perpetual and option contracts, offered on CoinW is essential for calculating returns on its contracts.

Nov 11, 2024 at 06:07 pm

Step 1: Understanding Contract Types

To calculate returns on CoinW contracts, it's crucial to grasp the various contract types offered on the platform. These contracts include:

- Perpetual Contracts: Also known as futures contracts, they allow traders to speculate on the future price of a specific asset without delivery or settlement. They offer leverage, enabling traders to multiply gains or losses.

- Option Contracts: These contracts grant traders the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame. They can be classified into call and put options.

Step 2: Selecting the Underlying Asset

Identify the underlying asset you wish to trade contracts on. CoinW offers contracts for various crypto assets, including Bitcoin (BTC), Ethereum (ETH), and others. Understanding the asset's historical price movements, market trends, and volatility is essential.

Step 3: Determining Contract Specifications

Once the underlying asset is selected, traders must examine the specific contract specifications. These specifications include:

- Contract Size: The number of underlying assets represented by each contract. This varies depending on the asset and contract type.

- Leverage: The multiplier that amplifies gains and losses, allowing traders to control a larger position with a smaller initial investment.

- Order Types: CoinW supports a range of order types, such as market orders, limit orders, and stop orders. Each order type has unique execution mechanisms that cater to different trading strategies.

Step 4: Calculating Position Value

To determine the value of a contract position, multiply the contract size by the current price of the underlying asset. This calculation provides the total position value, which is significant for managing risk and monitoring profitability.

Step 5: Computing P&L (Profit and Loss)

Calculating the profit or loss (P&L) involves comparing the current position value with the entry position value and considering the leverage factor. If the position value exceeds the entry value, a profit is realized. Conversely, if the position value falls below the entry value, a loss is incurred.

Step 6: Monitoring Position Margin

Traders must actively monitor their position margin, which is the collateral held in the trading account to cover potential losses. Maintaining a sufficient margin level is crucial to avoid margin calls and automatic liquidations.

Step 7: Managing Risk

Risk management is paramount in contract trading. Traders can employ various techniques, such as stop-loss orders, position sizing, and diversification, to mitigate potential risks and enhance the probability of successful trades.