The perpetual contract is an innovative financial derivative based on digital asset design between spot and futures. Compared with traditional futures contracts, perpetual contract is featured with no delivery date and flexible investment.
Inverse Perpetual: Traders need to confirm how much USD the transaction is and then calculate the margin profit and loss with the standard currency (such as BTC, ETH). For example, if a trader wants to trade BTC contracts, he must use BTC as a margin. If he wants to trade ETH contracts, he needs to hold ETH as a margin.
When trading with perpetual contracts, traders need to understand the market mechanism of the perpetual market. The key parts are:
1)Position Mode: Merge and Split
a. Merge Mode:
b. Split Mode:
2)Mark Price: It determines the unrealized profit and loss and the forced liquidation price. The Mark Price is used to improve the stability of the contract market and reduce unnecessarily forced liquidation during abnormal market fluctuations.
3)Initial Margin: It refers to the minimum amount of collateral required to open a position in leverage trading. The leverage multiples used by traders is inversely related to the initial margin required to hold positions. The higher the leverage, the lower the initial margin required.
Initial margin = contract face value * contract size / (entry price * leverage)
4)Maintenance Margin: Maintenance margin is the minimum level of margin required to maintain a position.
5)Funding Costs: Perpetual contracts use a funding cost mechanism to anchor the market price of perpetual contracts to spot prices. The funding cost is collected once every 8 hours, and at 08:00, 16:00, and 24:00 (HKT) every day. Only when holding a position at that moment, the user needs to pay or collect funding cost. If the position is closed before the cost collection time, no funding cost is required.
6)Contract Face Value: represents the value of one contract. One BTCUSD contract face value is $100.
Order size: contracts quantity when you buy/sell.
Trade size: order quantity which was fully concluded.
Position: unsettled contract quantity.