How to correctly calculate the average entry price for various derivative contracts

When trading derivatives on Gate.io, one of the key skills is the ability to calculate the average entry price for a position. This metric helps traders understand the true cost of their entry when making multiple buys/sells and manage risks effectively. We will explain how to calculate this parameter for the three main types of contracts.

Calculating the Average Price for Inverse Contracts

Inverse perpetual and futures contracts have a special structure: they are quoted in USD, but calculations are performed in cryptocurrency (for example, in Bitcoin).

The calculation formula is as follows:

Average Entry Price = Total Contract Quantity ÷ Total Value in Cryptocurrency

where Total Contract Value = (Quantity₁ ÷ Price₁) + (Quantity₂ ÷ Price₂) + (Quantity₃ ÷ Price₃)…

Practical example: Suppose a trader opens a long position in BTCUSD. First, they buy 50 contracts at $10,000, then add another 50 contracts at $15,000.

Calculating total value in BTC:

• (50 ÷ 10,000) + (50 ÷ 15,000) = 0.00833333 BTC

Average Entry Price = 100 ÷ 0.00833333 = $12,000

This approach allows the trader to understand the true average cost of their entry when averaging down the position.

Methodology for USDT Perpetual Contracts

USDT perpetual contracts follow a different calculation logic. They are quoted in USDT and also calculated in the same stablecoin, simplifying the process.

The formula is simpler:

Average Entry Price = Total Value in USDT ÷ Total Contract Quantity

where Total Value = (Quantity₁ × Price₁) + (Quantity₂ × Price₂) + (Quantity₃ × Price₃)…

Example calculation: A trader makes two trades in BTCUSDT. First, they buy 1 contract of BTC at 10,000 USDT, then add 2 contracts at 13,000 USDT each.

Calculations:

• 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 since it doesn’t require currency conversion.

Features of Calculation in USDC Perpetual Contracts

USDC perpetual contracts operate on a slightly different system. The average entry price here is a weighted average of the position’s value during the current settlement period and is adjusted when the position size changes.

Important note: At the end of each settlement cycle, the Mark Price automatically becomes the new average entry price.

Formula:

Average Entry Price = Total Session Value ÷ Total Position Size

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

Practical example: Trader A opens a long position of 0.5 BTC at $50,000. Later, they increase exposure by adding 0.8 BTC at $51,000.

Calculations:

• Total Session Value = (50,000 × 0.5) + (51,000 × 0.8) = 25,000 + 40,800 = 65,800 USDC
• Average Entry Price = 65,800 ÷ 1.3 = $50,615.38

Key Differences Between Contract Types

Understanding these differences is critical for traders to accurately calculate their positions and implement effective risk management strategies on the Gate.io platform.