Understanding how to calculate your average entry price is crucial for managing risk, determining profit targets, and making informed trading decisions in cryptocurrency derivatives markets. Different types of contracts—such as inverse perpetuals, USDT-margined, and USDC-margined perpetuals—use distinct calculation methods due to differences in quoting and settlement mechanisms.
In this guide, we’ll break down the formulas and practical examples for computing the average entry price across major derivative products. Whether you're a beginner or an experienced trader, mastering these calculations can significantly improve your trading precision.
What Is Average Entry Price?
The average entry price represents the weighted mean price at which you've opened positions in a particular asset. When you enter multiple trades at different prices, this metric helps determine your overall break-even point.
Accurately calculating it ensures better trade management, especially when scaling into or out of positions. Let’s explore how this works across various contract types.
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Inverse Perpetual and Delivery Contracts
Inverse contracts are quoted in USD but settled in cryptocurrency (e.g., BTC or ETH). This means your profits and losses are paid out in the base coin rather than a stablecoin.
Because of this structure, the formula for average entry price differs from linear contracts.
Formula
Average Entry Price = Total Number of Contracts / Total Contract ValueWhere:
Total Contract Value = (Quantity₁ / Price₁) + (Quantity₂ / Price₂) + ...
Example: BTCUSD Inverse Contract
A trader buys:
- 50 contracts at $10,000
- 50 contracts at $15,000
Step 1: Calculate total BTC value
= (50 / 10,000) + (50 / 15,000)
= 0.005 + 0.00333333 = 0.00833333 BTC
Step 2: Compute average entry price
= Total Contracts / Total BTC Value
= 100 / 0.00833333 ≈ $12,000
So, the trader's average entry price is $12,000.
This method accounts for the inverse relationship between USD price and BTC quantity—critical when managing large positions.
USDT-Margined Perpetual Contracts
USDT perpetual contracts are quoted and settled in USDT (or other stablecoins), making calculations more intuitive compared to inverse contracts.
These are often referred to as "linear" contracts because profits scale directly with price movement.
Formula
Average Entry Price = Total Position Value / Total Number of ContractsWhere:
Total Position Value = (Quantity₁ × Price₁) + (Quantity₂ × Price₂) + ...
Example: BTCUSDT Contract
A trader opens:
- 1 BTC contract at $10,000
- 2 BTC contracts at $13,000
Total Position Value
= (1 × 10,000) + (2 × 13,000) = 10,000 + 26,000 = 36,000 USDT
Total Contracts = 1 + 2 = 3
Average Entry Price
= 36,000 / 3 = $12,000
Thus, the average entry price is $12,000, clearly reflecting the volume-weighted cost basis.
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USDC-Margined Perpetual Contracts
USDC perpetuals function similarly to USDT-margined contracts but use USDC as collateral. The average entry price is calculated based on all entries within the current settlement cycle.
An important feature: at each settlement (usually every 8 hours), the mark price becomes the new average entry price, resetting your cost basis temporarily unless you add new positions.
Formula
Average Entry Price During Trading Period = Total Position Value / Total QuantityWhere:
Total Position Value = (Price₁ × Quantity₁) + (Price₂ × Quantity₂) + ...
Example: BTCUSDC Contract
Trader A holds:
- 0.5 BTC long at $50,000
- Adds 0.8 BTC at $51,000
Total Position Value
= (50,000 × 0.5) + (51,000 × 0.8)
= 25,000 + 40,800 = 65,800 USDC
Total Quantity = 0.5 + 0.8 = 1.3 BTC
Average Entry Price
= 65,800 / 1.3 ≈ $50,615.38
So, the updated average entry price is $50,615.38.
⚠️ Note: This value remains valid only until the next funding settlement. After settlement, the mark price becomes the new reference point unless new trades are executed.
Frequently Asked Questions (FAQ)
Q: Why does the average entry price matter?
A: It determines your break-even level and helps assess profitability. Knowing your true cost basis allows for precise stop-loss and take-profit placement.
Q: Does the average entry price change after funding?
A: Yes—for USDC and some USDT contracts, the mark price at settlement resets the average entry price. Always check your platform’s policy on post-funding cost basis updates.
Q: Can I have a negative average entry price?
A: No—average entry price reflects actual trade execution levels and cannot be negative. However, unrealized P&L can go negative if market price drops below your average entry.
Q: Should I include fees in my average entry price calculation?
A: While standard formulas don’t account for fees, advanced traders may adjust manually by slightly increasing the cost per contract for long positions (or decreasing for shorts).
Q: Is the formula the same across all exchanges?
A: Generally yes—but always verify with your exchange’s documentation. Some platforms may apply rounding or use mark price adjustments during settlements.
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Key Takeaways
- Inverse contracts require dividing total contracts by total crypto-denominated value.
- USDT/USDC perpetuals use simple weighted averages based on quantity and price.
- Settlement cycles impact USDC and some linear contracts, where mark price resets the cost basis.
- Accurate calculations help optimize trade timing and reduce emotional decision-making.
Mastering these concepts empowers you to build stronger position management habits—especially when scaling in or averaging down strategically.
Whether you're trading BTC, ETH, or altcoin derivatives, understanding how your average entry price is determined gives you a competitive edge in volatile markets.
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