What Is a Position in Contract Trading?
A position refers to holding a contract after a user (going long or short) decides not to execute an offsetting trade (selling or buying) of equal quantity and timing before the contract's delivery date.
Calculating Realized Profit & Loss (P&L)
Realized P&L reflects actual gains/losses when a position is closed.
Formula Breakdown:
Realized P&L = Weekly Contract P&L + Biweekly Contract P&L + Monthly Contract P&L For Buy (Long) Positions:
Realized P&L = (Contract Face Value / Settlement Price – Contract Face Value / Avg. Closing Price) × Closed Quantity Example:
- Buy 2 BTC contracts at 500 USD/BTC (settlement price).
- Sell 1 contract at 1000 USD/BTC.
- P&L = (100/500 – 100/1000) × 1 = 0.1 BTC profit.
For Sell (Short) Positions:
Realized P&L = (Contract Face Value / Avg. Closing Price – Contract Face Value / Settlement Price) × Closed Quantity Example:
- Sell 10 BTC contracts at 500 USD/BTC.
- Buy back 8 contracts at 1000 USD/BTC.
- P&L = (100/1000 – 100/500) × 8 = -0.8 BTC loss.
Calculating Unrealized Profit & Loss
Unrealized P&L estimates potential gains/losses on open positions.
Formula Breakdown:
Unrealized P&L = Weekly Unrealized P&L + Biweekly Unrealized P&L + Monthly Unrealized P&L For Buy (Long) Positions:
Unrealized P&L = (Contract Value / Settlement Price – Contract Value / Latest Price) × Position Size Example:
- Buy 6 BTC contracts at 500 USD/BTC.
- Current price: 600 USD/BTC.
- P&L = (100/500 – 100/600) × 6 = 2 BTC profit.
For Sell (Short) Positions:
Unrealized P&L = (Contract Value / Latest Price – Contract Value / Settlement Price) × Position Size Key Takeaways
- Positions remain active until offset or delivery.
- Realized P&L locks in profits/losses upon closing.
- Unrealized P&L fluctuates with market prices.
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FAQs
Q: How often should I monitor unrealized P&L?
A: Regularly, especially in volatile markets, to decide whether to hold or close positions.
Q: Does realized P&L include fees?
A: No, this calculation focuses on trade execution. Factor in fees separately for net profit.
Q: Can unrealized P&L become negative?
A: Yes, if the market moves against your position.
Q: What’s the difference between weekly and monthly contract P&L?
A: It depends on the contract’s expiry timeline—shorter durations often have higher volatility.
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Disclaimer: Trading involves risk. Past performance doesn’t guarantee future results.
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