This paper mainly summarizes the characteristics of perpetual contract and the main differences between perpetual contract, spot transaction and traditional contract transaction, and helps you deeply understand perpetual contract transaction by introducing some basic concepts.
What is perpetual contract
Perpetual contract is a financial derivative between spot and futures. It has no delivery date and is not limited by time. It is more suitable to be held as an investment product.
Types of perpetual contracts
BitVenus digital currency trading platform currently provides forward perpetual contract trading with up to 125 times leverage, and more perpetual contract trading targets and derivative hedging tools will be launched one after another. At present, the platform only accepts USDT as the margin for all contract transactions, and all products are priced by USDT.
Difference Between Spot Trading and Contract Trading
- Unlike the spot market, the two counterparties of the transaction will not settle immediately, but on a clearly agreed future date.
Important note: Due to the different ways of calculating unrealized profits and losses in the contract market, traders do not directly buy and sell physical goods in the contract market, but trade contracts representing goods and settle in the future.
- There is a further difference between the perpetual contract market and the spot market, that is, due to the existence of leverage, traders can hedge the spot position risk with relatively less funds in the contract market.
Important note: Contract prices are different from spot market prices because of the cost of holding positions. Like many contract markets, the platform uses a "capital fee" to ensure that the market price of the contract tends to be the "mark price." Although this system will promote the price convergence between the target spot and the contract in the long run, there may still be relatively large price differences between the contract and the spot price in the short run.
The difference between perpetual contract and traditional contract transaction
- The perpetual contract is similar to the traditional contract. The main difference is that the perpetual contract has no expiration date or settlement date.
- In addition, the perpetual contract inherits the characteristics of the contract, especially that there is no need to deliver the actual goods, and imitates the behavior of the spot market to reduce the gap between the contract price and the marked price. Compared with the traditional contract (there will be a long-term / fixed price difference from the spot price), this is a great progress.
What are the characteristics of perpetual contracts
- No delivery date
Traditional spot transactions require immediate delivery, while futures contracts require delivery on a specified future date, while perpetual contracts do not have a specified delivery date and never expire, so traders do not need to be bothered by settlement or interval fees. As traders can buy/sell positions at any time or hold contracts for a long time,it is suitable for speculators or traders with hedged positions, Traders should remember to pay attention to the funding rate per 12 hours as there may be funding charges for the orders held.
- Double price mechanism: improve the difficulty of price manipulation
Market manipulation is an act of maliciously manipulating transaction prices to obtain personal interests. This abnormal price fluctuation may lead to the malicious leveling of positions, thus forming a very unfair trading environment. In order to reduce the possibility of malicious manipulation of the market, BitVenus uses two sets of price mechanisms to ensure the fairness of the trading environment. At present, most exchanges use the latest market price as the trigger point the forced liquidation. BitVenus uses the reasonable marked price as the trigger point for forced liquidation, rather than the latest market price on the platform. The marked price is calculated by referring to the spot prices of the three spot exchanges in real time. Therefore, even BitVenus has no ability to affect the tag price.
- Always anchor spot market prices
Another feature of the BitVenus perpetuity contract is that the transaction price is always anchored to the spot market price without a huge deviation. Funding costs are an important tool used to ensure this goal. BitVenus ensures that the trading price of perpetuities is always anchored to the spot price by calculating the cost of funds by weighing a combination of factors such as the trend of the long and short sides of perpetuity trades on the floor every 8 hours, with one long and short paying the other. Funds are charged every 8 hours and are collected at 00:00，08:00 and 16:00 each day（UTC+8）.
- Flexible leverage up to 125x
The spot leveraged trading market generally provides 3-5 times leverage, and the borrowing cost is also high. In the futures market, several major trading platforms only provide leverage of 5-20 times. However, BitVenus perpetual contracts provide up to 125 times leverage, and traders can flexibly adjust after opening positions according to their trading needs. The platform provides a flexible gradient margin system while ensuring the best trading experience for traders.
- Automatic position reduction mechanism to ensure the interests of traders
BitVenus adopts a complete position crossing mechanism to ensure the interests of traders. This mechanism is used to decide who is responsible for the loss caused by the inability of the position to be traded at a price better than the bankruptcy price when the position is forced to close. Different from the socialized loss sharing mechanism, all profitable traders share the loss. BitVenus adopts the automatic position reduction mechanism to ensure that the interests of traders are protected from the huge losses caused by a few high-risk speculators. The automatic position reduction system sorts according to the profit percentage of customer positions and effective leverage. That is, traders with high returns and high leverage will be selected first.