DigiFinex contract calculation formula

Understanding the DigiFinex contract calculation formula allows traders to precisely calculate contract value, profitability, and risk, empowering them to make informed decisions in futures contract trading.

Nov 29, 2024 at 10:54 pm

DigiFinex Contract Calculation Formula: A Comprehensive Guide

Introduction

DigiFinex is a leading cryptocurrency exchange that offers a range of futures contract trading options. Understanding the contract calculation formula is crucial for traders to accurately determine potential profits and losses. This guide provides a comprehensive breakdown of the DigiFinex contract calculation formula, explaining each element and providing examples for clarity.

Step 1: Identifying Contract Parameters

The first step in calculating contract value is identifying the relevant contract parameters:

• Contract Size: This represents the underlying asset's value for each contract.
• Margin: A percentage or amount of funds required to open and maintain a position.
• Leverage: The ratio by which the contract value exceeds the margin amount, allowing traders to amplify their potential profits.

Example: A contract with a contract size of 100 USDT, a margin of 10%, and a leverage of 10x has a contract value of 1000 USDT.

Step 2: Understanding Funding Rates

Funding rates are periodic payments made between long and short contract holders to maintain contract parity with the spot market.

Positive Funding Rate: Short positions pay long positions, indicating higher demand for long contracts.
Negative Funding Rate: Long positions pay short positions, suggesting higher demand for short contracts.

Funding rates are typically small but can significantly impact overall contract profitability.

Example: A positive funding rate of 0.01% implies a payment of 1 USDT per contract per day, favoring long positions.

Step 3: Calculating Contract Price

The contract price is determined by the underlying asset's spot price and the basis, which represents the difference between the futures contract price and the spot price.

Contract Price = Spot Price + Basis

Example: If Bitcoin's spot price is $20,000 and the contract's basis is $500, the contract price becomes $20,500.

Step 4: Determining Position Value

The position value is the notional value of the contract, calculated by multiplying the contract price by the contract size.

Position Value = Contract Price x Contract Size

Example: A long position with a contract price of $20,500 and a contract size of 100 USDT has a position value of $205,000.

Step 5: Calculating Profit/Loss

The profit or loss on a contract trade is determined by comparing the entry and exit prices.

Profit/Loss = (Exit Price - Entry Price) x Contract Size

Example: If a trader enters a long position at $20,500 and exits at $21,000, their profit would be ($21,000 - $20,500) x 100 = $500.

Step 6: Considering Fees and Expenses

Transaction fees and other expenses associated with contract trading, such as maker/taker fees or network fees, should be included in the calculation to accurately assess profitability.

Profitability = Profit/Loss - Fees and Expenses

Example: If the total fees and expenses for the trade are $20, the final profitability becomes $500 - $20 = $480.

Step 7: Margin and Leverage Management

Margin trading amplifies potential profits but also increases risk. It's essential to manage margin and leverage carefully to avoid liquidation and excessive losses.

Liquidation Level = Entry Price x (1 - Margin) / (1 + Leverage)

Example: For a long position with an entry price of $20,500, a margin of 10%, and a leverage of 10x, the liquidation level is $20,500 x (1 - 0.1) / (1 + 10) = $17,917.

Conclusion

Understanding the DigiFinex contract calculation formula is crucial for effective futures contract trading. By following the steps outlined in this guide, traders can accurately determine contract value, profitability, and risk, enabling them to make informed decisions and maximize their trading potential.