Gross Profit and Loss (PnL)

PnL Calculations in Lynx

When opening a trade on Lynx, traders indicate their intended position (what they want to do/what type of exposure they are looking for) through a few parameters:

• Collateral Asset (eg. TKN)

• Collateral Amount (eg. 10 TKN)

• Leverage (eg. 50x)

• Traded Instrument (eg. ETH/USD)

• Direction (eg. Long)

• Take Profit/Stop Loss (eg. 300% and 80%)

Upon opening a trade, the price of the traded instrument - denoted as the entryPrice - is retrieved from a price oracle and assigned to the position. As the price of the traded instrument fluctuates over time, the position's gain or loss also fluctuates.

This calculated gain or loss is referred to as the position's Gross Profit and Loss (PnL). Given a referencePrice at any point in time, we can calculate a position's PnL by determining the leveraged price change of the traded instrument (expressed as a percentage) and multiplying it by a trader's collateral.

For a long position's PnL, the formula is:

$$PnL = collateral*leverage*((referencePrice/entryPrice) - 1)$$

And for a short position's PnL, the formula is:

$$PnL = collateral*leverage*(1-(referencePrice/entryPrice) )$$

Example of Gross PnL

Consider a trader who holds 10 TKN as collateral and opens a long position on ETH/USD using 50x leverage. Assume the position's entryPrice on ETH/USD is $1200.

If the price of ETH/USD goes up to $1212 (ie. referencePrice), the leveraged price change for the long position would be 50% (+1% price change multiplied by 50x leverage). The PnL - measured relative to the trader's collateral - would therefore read:

• PnL = 10 TKN * +50% = +5 TKN: If the position is closed at this moment, this "winning" trader would walk away with 15 TKN, effectively profiting 5 TKN

If the price of ETH/USD went down to $1188, the leveraged price change for the long position would be -50% (-1% price change multiplied by 50x leverage). In this case, the PnL - measured relative to the trader's collateral - would read:

• PnL = 10 TKN * -50% = -5 TKN: If the position is closed at this moment, this "losing" trader would walk away with 5 TKN, effectively paying 5 TKN from their collateral

Units of Gross PnL

As can be seen in the example above, PnL on Lynx is calculated in terms of the collateral asset selected (TKN) rather than the asset's USD value. To this extent, the price of TKN is never once referenced when calculating the trader's PnL.

As a collateral asset's price has no impact on the position's PnL, it means price fluctuations in the collateral asset can not bring a trader closer to liquidation. As a result, traders don’t need to monitor the price of the asset they use as collateral. This is an important feature of the Lynx platform and a key enabler of our ability to support any collateral asset, with volatile assets creating no additional risk of liquidation for traders. Only the price of the traded instrument impacts a trade’s health.