Futures trading is a dynamic and complex field that requires a solid understanding of key concepts such as entry price average, position management, and daily settlement mechanics. Whether you're a beginner or an experienced trader, mastering the nuances of how your average entry price is calculated—and how it impacts your profit and loss—can significantly improve your trading performance.
In this comprehensive guide, we’ll break down what entry price average means, how it differs from holding cost basis, and how to calculate it accurately across multiple trades. We’ll also address common misconceptions and provide real-world examples to help you make smarter trading decisions.
What Is Entry Price Average?
The entry price average refers to the average price at which a trader opens a long or short futures position. When you enter into multiple trades for the same contract in the same direction—whether buying (going long) or selling (going short)—your trading platform calculates the mean price across all those entries.
For example:
- If you buy one contract at $3,000 and another at $3,200, your entry price average is $3,100.
- This average becomes the benchmark for calculating unrealized and realized profits or losses.
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Most trading systems automatically merge positions of the same contract and direction, updating the average accordingly. This simplifies portfolio tracking and ensures clarity in performance evaluation.
Long vs. Short: Two Sides of Futures Trading
Futures allow traders to take two primary positions:
- Long Position (Bullish Outlook): You buy a futures contract expecting prices to rise. Your profit increases as the market climbs above your entry price average.
- Short Position (Bearish Outlook): You sell a futures contract anticipating a price drop. Profits accumulate when the market falls below your average entry level.
To open any position, you must post initial margin—a security deposit that guarantees contract fulfillment. The actual price at which your order executes becomes part of your entry cost calculation.
Key factors involved include:
- Contract type
- Direction (buy/sell)
- Execution price
- Number of contracts (lot size)
These inputs feed directly into determining your final entry price average.
Entry Price Average vs. Holding Cost Basis
A common point of confusion among traders is the difference between entry price average and holding cost basis (also known as position average price). While they sound similar, they serve different purposes due to the daily mark-to-market system used in futures markets.
| Concept | Definition | Purpose |
|---|---|---|
| Entry Price Average | The weighted average of all opening prices for a given position | Used to calculate actual profit or loss upon closing |
| Holding Cost Basis | Reflects yesterday’s settlement price, sometimes adjusted for fees | Used internally by brokers; does not affect true P&L |
⚠️ Important: The holding cost basis resets every trading day based on the previous day’s settlement price. However, your real盈亏 (profit/loss) is always calculated against your original entry price average, not the daily reset value.
This distinction is crucial because new traders may misinterpret their floating P&L if they focus on the wrong metric.
How to Calculate Entry Price Average
The formula for calculating entry price average is straightforward:
Entry Price Average = Total Sum of Opening Prices ÷ Total Number of Contracts
Let’s walk through a practical example:
Example 1: Simple Average Calculation
Trader Li opens two long positions in rebar futures:
- 1 contract at 3,000 yuan
- 1 contract at 3,200 yuan
$$ \text{Entry Price Average} = \frac{(3,000 + 3,200)}{2} = 3,100 \text{ yuan} $$
His system now shows an average entry of 3,100 yuan per contract.
Example 2: Adjusting After Partial Close
Now consider a more nuanced scenario:
- Buys 1 lot of soda ash at 1,370
- Buys another lot at 1,410
- Initial average: $$(1,370 + 1,410) / 2 = 1,390$$
So far, so good.
Then, he closes one lot at 1,420 (a profitable exit). Many assume the average stays at 1,390—but that’s incorrect.
After closing the first position (bought at 1,370), only the second position (at 1,410) remains. Therefore:
✅ New Entry Price Average = 1,410
Why? Because there's only one active contract left—the one opened at 1,410. The closed trade no longer affects the average.
📌 Note: The take-profit price (e.g., 1,420) does not influence the entry average. Only actual opening execution prices matter.
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Frequently Asked Questions (FAQ)
Q1: Does closing part of my position change my entry price average?
Yes. When you partially close a position, only the remaining open contracts are considered. If you had two entries at different prices and close one, your new average reflects only the still-open contract(s).
Q2: Is entry price average the same as break-even price?
Not exactly. The break-even price accounts for transaction costs like commissions and funding fees. Your entry price average doesn’t include these by default but serves as the base for calculating break-even levels.
Q3: Why does my app show a different average than I calculated?
Some platforms display holding cost basis, which uses prior-day settlement prices rather than actual trade averages. Always check whether the number shown is your real entry average or just an accounting reference.
Q4: Can I manually adjust my entry price average?
No. The entry price average is determined solely by executed trades. You cannot override it manually—it’s a factual record of your trade history.
Q5: Does leverage affect entry price average?
Leverage affects margin requirements and potential gains/losses, but not the calculation of entry price average. That remains purely a function of execution prices and volume.
Q6: What happens if I reverse my position (from long to short)?
If you fully close all long positions and open new short ones, the old entry average disappears. A new short-side average begins forming from your sell orders.
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Final Thoughts
Understanding your entry price average is fundamental to effective futures trading. It forms the foundation of accurate profit tracking, risk assessment, and strategic decision-making. Unlike temporary metrics like holding cost basis, your true entry average remains constant—only changing when you add to or reduce your position.
By recognizing how partial exits impact your average and avoiding confusion with settlement-based figures, you gain greater control over your trading outcomes.
Whether you're managing small speculative trades or large hedging positions, precision in tracking your costs leads to better discipline and improved results over time.
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