Linear and Inverse Contract Valuation

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Summary

This document defines a common interface for calculating trade amount and account equity, then supplies formulas for linear and inverse assets. For a linear contract, amount scales with contract size, execution price, and quantity; equity adds the marked position value to balance and subtracts fees. For an inverse contract, amount is contract size times quantity divided by execution price, while the equity formula uses the reciprocal of price and subtracts both the position term and fees from a negated balance.

These formulas illustrate how contract denomination changes valuation: linear exposure varies directly with price, while inverse exposure varies inversely. The document provides implementation formulas but no worked examples, assumptions about quantity or sign conventions, or discussion of fee timing. In particular, users should verify how balance, position direction, contract size, and currency denomination are defined by the surrounding system before relying on the equity expressions.

Key ideas

Linear contract amount is proportional to execution price, quantity, and contract size.
Linear equity combines balance with the marked position value, less fees.
Inverse contract amount varies inversely with execution price.
The inverse equity expression uses reciprocal-price exposure and negates the balance and position terms.
The formulas require context on sign conventions and currency denomination before practical use.

Linear and Inverse Contracts: Notional Amount and Equity Calculations

Summary

Key ideas

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