The usual market practice for contracts with direct quotes is that we usually buy/sell the contracts that are denominated in the base currency. For example, on the spot market of BTCUSD, we need to state how many Bitcoin/Ethereum(Base currency) we want to trade, and the profit and loss will be settled in USD(Quote currency).
However, quotes for Perpetual Contracts on Bybit are slightly different from the above-mentioned example.
Firstly, the quotes are given in a direct way (BTCUSD) as per previously, but the actual trading is conducted inversely (USDBTC). Secondly, traders need to indicate their intended opening position volume as denominated in USD contracts and Bybit’s platform will automatically calculate profit and loss figures denominated in BTC.
This feature is specifically designed to provide convenience to all traders as it allows trades as low as 1 USD to be easily keyed instead of inputting a string of decimal places in BTC such as 0.000XX BTC.
Using BTCUSD as an example:
If a trader buys 10,000 contracts at BTC = 8,000 USD on Bybit
What he is actually doing is that he is selling 10,000 USD and buying an equivalent value of BTC (10,000/8,000), which is equivalent to 1.25BTC
Suppose the trader decides to close all contracts at BTC = 12,500 USD on Bybit
Again, what he is actually doing is buying back 10,000 USD worth of contracts and selling the equivalent value of BTC (10,000/12,500) which equates to 0.8 BTC
Profit/Loss for a short position = Beginning Value of Quote Currency - Ending Value of Quote currency
= 1.25 BTC - 0.8 BTC
= 0.45 BTC
By this logic, we can derive the formula to calculate profit & loss for perpetual contracts on Bybit:
Long position Profit & Loss = Contract Value x (1/Entry Price - 1/Exit Price)