How to calculate OKX contract returns

Calculating returns in OKX contract trading involves understanding contract types, position sizing, leverage application, breakeven price determination, profit/loss assessment, ROI calculation, and factoring in transaction fees.

Nov 09, 2024 at 07:54 am

How to Calculate OKX Contract Returns

Calculating contract returns on OKX, a renowned cryptocurrency exchange, involves a multi-step process that considers various factors such as contract type, position size, leverage, entry and exit prices, and fees. Understanding these elements and applying the appropriate formula can help traders accurately assess their potential profits or losses.

Step 1: Understand Contract Types

OKX offers a range of contract types, each with unique characteristics and calculation methods. The two main types are:

• Perpetual Contracts: These contracts have no fixed expiry date and continuously roll over, allowing traders to maintain positions for extended periods.
• Futures Contracts: Futures contracts, on the other hand, have a predetermined expiry date at which the contract settles and closes.

Step 2: Calculate Position Size

Position size represents the amount of the underlying asset being traded in a contract. It is determined by dividing the total trade amount by the contract size. For example, if you trade 100,000 USD of BTCUSDT perpetual contracts with a contract size of 100 USD, your position size would be 1000 (100,000 USD / 100 USD).

Step 3: Apply Leverage

Leverage is a tool that allows traders to increase their potential returns by borrowing funds from the exchange. OKX offers leverage options varying from 2x to 100x, depending on the contract type and underlying asset.

Formula: Position Value = Initial Capital * Leverage
For instance, using 5x leverage on a position size of 1000 would result in a position value of 5000 USD (1000 * 5).

Step 4: Determine Breakeven Price

The breakeven price is the price at which a trader would neither profit nor incur a loss on their position. It is calculated by adding (or subtracting, for shorting contracts) the initial entry price multiplied by the fees incurred during the trade to the entry price.

Formula: Breakeven Price = Entry Price + (Entry Price * Fees)
Assuming an entry price of 10,000 USD for a long position with a 0.05% entry fee, the breakeven price would be 10,050 USD (10,000 USD + (10,000 USD * 0.0005)).

Step 5: Calculate Profit/Loss

The profit or loss incurred in a contract trade is determined by multiplying the difference between the exit price and the entry price by the position size. For a successful trade, the result will be a profit, while for an unsuccessful trade, it will be a loss.

Formula: Profit/Loss = (Exit Price - Entry Price) * Position Size
In a trade where a trader enters at 10,000 USD and exits at 10,200 USD while holding a position size of 1000, the profit would be 2000 USD ((10,200 USD - 10,000 USD) * 1000).

Step 6: Calculate Return on Investment (ROI)

The return on investment represents the percentage gain or loss on the original investment. It is calculated by dividing the profit or loss by the initial capital and multiplying it by 100.

Formula: ROI = (Profit/Loss) / Initial Capital * 100
For the trade in the previous step, the ROI would be 20% (2000 USD / 10,000 USD * 100).

Step 7: Impact of Transaction Fees

Transaction fees, including entry, exit, and financing fees, have a direct impact on the profitability of a trade. OKX offers a tiered fee structure based on trading volume, with lower fees for higher-volume traders. Traders should factor in these fees when calculating their potential returns.