KuCoin contract calculation formula

KuCoin employs specific formulas for contract calculations, enabling traders to precisely determine profit and loss, margin requirements, and liquidation prices for futures and perpetual contract trading.

Nov 16, 2024 at 02:58 pm

KuCoin Contract Calculation Formula

KuCoin, a renowned cryptocurrency exchange, offers various contract trading services to empower traders with advanced trading strategies. To facilitate precise contract calculations, the exchange utilizes specific formulas that determine key aspects of contract trading, including profit and loss, margin, and other essential parameters. This comprehensive guide delves into the intricacies of KuCoin's contract calculation formulas, providing a step-by-step explanation to guide traders in their decision-making process.

1. Understanding Contract Value

The contract value represents the total underlying asset value associated with a futures or perpetual contract. It is calculated by multiplying the contract size by the underlying asset's index price at the time of contract creation.

• Formula: Contract Value = Contract Size * Underlying Asset Index Price
• Example: For a Bitcoin futures contract with a contract size of 100 USD and an underlying asset index price of 20,000 USD, the contract value would be 20,000 USD * 100 = 2,000,000 USD.

2. Calculating Profit and Loss

Profit and loss (P&L) in contract trading reflects the financial outcome of a trader's position. It is determined by the difference between the entry price and the exit price, multiplied by the contract size and the direction of the trade.

• Formula for Long Positions: P&L = (Exit Price - Entry Price) Contract Size Direction (Long = 1)
• Formula for Short Positions: P&L = (Entry Price - Exit Price) Contract Size Direction (Short = -1)
• Example: A trader enters a long position on a Bitcoin futures contract with an entry price of 20,000 USD and an exit price of 21,000 USD. The contract size is 100 USD. P&L = (21,000 - 20,000) 100 1 = 1,000 USD profit.

3. Determining Margin Requirements

Margin refers to the initial funds deposited by a trader to enter a contract position. It serves as collateral to cover potential losses. KuCoin calculates margin requirements based on the contract value and the exchange's specified margin ratio.

• Formula for Initial Margin: Initial Margin = Contract Value * Margin Ratio
• Formula for Maintenance Margin: Maintenance Margin = Contract Value * Maintenance Margin Ratio
• Example: For a Bitcoin futures contract with a contract value of 2,000,000 USD and a margin ratio of 10%, the initial margin would be 2,000,000 0.1 = 200,000 USD. The maintenance margin would be 2,000,000 0.05 = 100,000 USD.

4. Calculating Liquidation Price

Liquidation occurs when a trader's margin falls below the maintenance margin requirement. KuCoin determines the liquidation price, which represents the price at which a position is forcibly closed to cover losses.

• Formula for Liquidation Price (Long Positions): Liquidation Price = Entry Price / (1 + (Initial Margin / (Maintenanc