How to calculate Upbit contract returns

Understanding your returns on Upbit contracts requires a structured approach that involves calculating contract value, accounting for initial margin, monitoring price movements, considering leverage, incorporating time value for futures contracts, and deducting funding rates and fees.

Nov 13, 2024 at 06:03 pm

Understanding Upbit Contract Returns

Calculating returns on Upbit contracts involves a systematic approach to assess the profitability of your trades. Here's a comprehensive guide to help you navigate the process:

Step 1: Determine the Contract Value

• Identify the current underlying asset price (e.g., BTC, ETH) on Upbit.
• Multiply the asset price by the contract size (e.g., 1 BTC for BTC contracts).
• The resulting value represents the contract value, which serves as the base for calculating returns.

Step 2: Account for Initial Margin and Fees

• Deduce the initial margin (a percentage of the contract value) from the contract value. This margin secures your position against market fluctuations.
• Consider the trading fees associated with opening and closing the contract, as these impact the realized returns.

Step 3: Monitor Market Price Movements

• Track the price movements of the underlying asset throughout the contract's duration.
• Determine the entry and exit prices for your trade, which define the price difference you aim to profit from.

Step 4: Calculate Unleveraged Profit or Loss

• For unleveraged trades, calculate your profit or loss by subtracting the entry price from the exit price and multiplying the result by the contract size.
• If the result is positive, you've made a profit; if it's negative, you've incurred a loss.

Step 5: Incorporate Leverage

• Leveraged contracts magnify both potential profits and losses.
• Calculate the leverage multiplier to understand how much capital is borrowed for the trade.
• Multiply the unleveraged profit or loss by the leverage multiplier to determine the leveraged return.

Step 6: Consider Time Value for Futures Contracts

• Futures contracts have an expiration date, which affects their value over time.
• Calculate the time value premium (or basis) as the difference between the futures price and the underlying asset price.
• Time value erosion occurs as the contract approaches expiration, impacting returns.

Step 7: Subtract Funding Rates and Fees

• Funding rates are periodic payments between long and short positions.
• Account for funding rates and any additional fees incurred during the contract's duration to adjust the final return calculation.

Additional Considerations:

• Utilize Upbit's trading tools and calculators to simplify the return calculation process.
• Understand the risks associated with contract trading and implement appropriate risk management strategies.
• Regularly monitor market conditions and adjust your trading strategy accordingly.