Below is a detailed guide on calculating the average entry price for various derivative products, including:
- Inverse Perpetual & Futures Contracts
- USDT Perpetual Contracts
- USDC Perpetual Contracts
Inverse Perpetual & Futures Contracts
Inverse perpetual and futures contracts are quoted in USD but settled in cryptocurrencies like Bitcoin. The average entry price is calculated as follows:
Formula
Average Entry Price = Total Contract Quantity / Total Contract Value
Total Contract Value =
[(Quantity₁ / Price₁) + (Quantity₂ / Price₂) + (Quantity₃ / Price₃) + ...]
Example
A trader buys:
- 50 contracts at $10,000
- 50 contracts at $15,000
Total BTC Value of Contracts:
= (50 / 10,000) + (50 / 15,000)
= 0.00833333 BTC
Average Entry Price:
= 100 contracts / 0.00833333 BTC
= $12,000
USDT Perpetual Contracts
USDT perpetual contracts are quoted and settled in USDT.
Formula
Average Entry Price = Total Contract Value / Total Contract Quantity
Total Contract Value =
[(Quantity₁ × Price₁) + (Quantity₂ × Price₂) + (Quantity₃ × Price₃) + ...]
Example
A trader buys:
- 1 BTC contract at 10,000 USDT
- 2 BTC contracts at 13,000 USDT
Average Entry Price:
= (1 × 10,000 + 2 × 13,000) / (1 + 2)
= 12,000 USDT
USDC Perpetual Contracts
For USDC perpetual contracts, the average entry price is the volume-weighted average opening price within the current settlement cycle. It updates at each settlement based on the mark price.
Formula
Opening Average Price = Total Position Value / Total Trade Quantity
Total Position Value =
[(Price₁ × Quantity₁) + (Price₂ × Quantity₂) + ...]
Example
Trader A’s Positions:
- 0.5 BTC long at $50,000
- 0.8 BTC long at $51,000
Total Position Value:
= (50,000 × 0.5) + (51,000 × 0.8)
= 65,800 USDC
Opening Average Price:
= 65,800 / (0.5 + 0.8)
= $50,615.38
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FAQs
1. Why is calculating average entry price important?
It helps traders track their position costs accurately, aiding in risk management and profit assessment.
2. Does the average entry price change when adding to a position?
Yes—each new trade adjusts the weighted average based on the added quantity and price.
3. How does settlement affect USDC contracts’ average price?
At settlement, the mark price becomes the new average entry price, resetting the calculation for the next cycle.
4. Can leverage impact the average entry price?
No—leverage influences position size and margin but does not alter the entry price calculation.
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By mastering these calculations, traders can better manage portfolios across derivatives. Always verify formulas with your exchange’s documentation for precision.