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Understanding Capital Efficiency
The Capital Efficiency, Profit and Loss table depicts example cases where users hold ETH Strike Tokens of different capital efficiency levels, in comparison to just holding an ETH token.

How to calculate Capital Efficiency?

  1. 1.
    To calculate capital efficiency, you need 2 variables:
    • Value of 1 Strike Token
    • Price of the Asset when buying the Strike Token
  2. 2.
    To calculate the Value of 1 Strike Token, use the name of the Strike Token to form up the formula. This will either be:
    • Long Token = Price of the Asset when buying the Strike Token - Price Floor
    • Short Token = Price Ceiling - Price of the Asset when buying the Strike Token.
  3. 3.
    The final step is dividing the Price of the Asset when buying the Strike Token with the Value of 1 Strike Token
For instance, ETH-1500 gives you an exposure to 1 ETH while requiring initial capital of $1,500 as opposed to $3,000 if you were to buy ETH on the market, resulting in higher capital efficiency and profit percentage (33.33% vs. 16.67% profit on investment).
⚠️ Nevertheless, similar to Futures trading, having a capital efficiency higher than 1X also means higher losses if the market trend does not follow according to users’ plan. As shown in the table above, the ETH-1500 token will be liquidated if the ETH price decreases to $1,800 and the 4500-ETH token will be liquidated when the ETH price increases to $3,750.