Concepts
Trading Terms
Long & Short Position
Long Position
If an investor has long positions, it means that the investor has bought and owns those shares of stocks. For instance, an investor who owns 100 shares of Tesla stock in their portfolio is said to be long 100 shares. This investor has paid in full the cost of owning the shares and will make money if they rise in value and are later sold for more than they were bought.
Short Position
If the investor has short positions, it means that the investor owes those stocks to someone, but does not actually own them yet. Continuing the example, an investor who has sold 100 shares of Tesla without yet owning those shares is said to be short 100 shares. The short investor owes 100 shares at settlement and must fulfill the obligation by purchasing the shares in the market to deliver.
References
Profit and Loss (PnL)
Realized PnL
Realized PnL is calculated using based on your closing price and entry price. Because the realized PnL refers to the profit or loss that originate from closed positions, it has no direct relation to the mark price, but only to the executed price of the orders.
Unrealized PnL
The unrealized PnL, on the other hand, is constantly changing and is the primary driver for liquidations. Thus, the mark price is used to ensure that the unrealized PnL calculation is accurate and just. PnL is always denoted in the settlement currency.
References
Futures Contract
Spot Price (Current Price): is the price traders pay for instant delivery of an asset, such as a security or currency. They are in constant flux. Spot prices are used to determine futures prices and are correlated to them.
Last Price: refers to the latest trade price of the futures contract. In other words, the last trade of a particular contract defines its Last Price.
In ideal conditions, the price of a futures contract (last price) follows the spot price of the underlying asset. However, this is not always the case, as futures contracts have their own demand and supply dynamics, which often leads to differences in the prices of these contracts and their underlying assets.
Mark Price: refers to an estimated true value of a contract. Also known as “marking-to-market,” it takes into consideration the fair value of an asset to prevent unnecessary liquidations during a volatile market.
References
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