How to correctly calculate the average entry price for different types of contracts

Each trader working with derivatives on Gate.io faces the need to track the average entry price for their position. This is a critically important parameter that influences risk management and profitability assessment. But how exactly is this average price calculated? It turns out that the formula depends on the type of contract in which you open a position. Let’s examine the details.

Why the Entry Price Matters and How It Works

The entry price shows the weighted average cost at which you entered the position after a series of consecutive trades. This is especially important when averaging a position — when you add contracts at different price levels. That’s why different contract types on the platform use different methods to calculate the average entry price depending on the quote currency and mechanics.

Inverse Contracts: Calculation in Cryptocurrency

Inverse perpetual and futures contracts are quoted in USD but calculated in cryptocurrency (e.g., BTC). This means your profit or loss is expressed in the cryptocurrency itself, not in dollars.

The formula for calculating the average entry price in inverse contracts looks like this:

Average Entry Price = Total Contracts ÷ Total Value in Cryptocurrency

where Total Value in Cryptocurrency = (Quantity₁ ÷ Price₁) + (Quantity₂ ÷ Price₂) + …

Let’s consider a practical example with BTCUSD. Suppose a trader bought 50 contracts at $10,000, then another 50 contracts at $15,000.

Calculation:

• Cryptocurrency value = (50 ÷ 10,000) + (50 ÷ 15,000) = 0.005 + 0.00333 = 0.00833 BTC
• Average entry price = 100 contracts ÷ 0.00833 ≈ $12,000

Key point: in inverse contracts, we divide the quantity by the price because you pay in cryptocurrency.

USDT Contracts: Direct Multiplication

Perpetual USDT contracts work differently. They are quoted and calculated in USDT. Here, the standard weighted average formula applies:

Average Entry Price = Total Value in USDT ÷ Total Contracts

where Total Value in USDT = (Quantity₁ × Price₁) + (Quantity₂ × Price₂) + …

Example with BTCUSDT: a trader opens 1 BTC at 10,000 USDT, then adds 2 BTC at 13,000 USDT.

Calculation:

• Total value = (1 × 10,000) + (2 × 13,000) = 10,000 + 26,000 = 36,000 USDT
• Average entry price = 36,000 ÷ 3 = 12,000 USDT

This method is more intuitive for most traders, as it aligns with how we typically calculate average prices on spot markets.

USDC Contracts and Calculation Cycles

Perpetual USDC contracts add another layer of complexity. The average entry price in USDC contracts is recalculated at the end of each settlement cycle. At that moment, the market price (mark price) becomes the new average entry price for the next cycle.

Average Entry Price = Total Session Value ÷ Total Position Size

where Total Session Value = (Price₁ × Size₁) + (Price₂ × Size₂) + …

Example: Trader A holds 0.5 BTC with an entry price of $50,000. During a settlement cycle, they decide to increase the position by another 0.8 BTC at $51,000.

Calculation:

• Total value = (50,000 × 0.5) + (51,000 × 0.8) = 25,000 + 40,800 = 65,800 USDC
• Average entry price = 65,800 ÷ (0.5 + 0.8) = 65,800 ÷ 1.3 ≈ $50,615.38

After the settlement cycle, this average entry price may change if the position is not closed.

Practical Tips for Accurate Calculation

Understanding how the average entry price is calculated for each contract type is crucial for managing positions. Make sure to track the average entry price for each position separately, especially if you are using multiple contract types simultaneously. Gate.io’s platform automatically calculates this average price, but knowing the formulas helps you better understand your risks and potential profitability. Properly calculating the average entry price is fundamental to prudent risk management in derivatives trading.