Perpetual Contracts on BitMEX
Perpetual Swap is an innovative product invented by BitMEX.
Perpetual contracts are similar to traditional futures contracts with some differences:
It does not expire or settle (except in the case of early settlement).
A perpetual swap contract is similar to a margined spot market, so it trades close to the price of the underlying reference index.
- The funding mechanism is used to anchor the contract to the spot price of the underlying asset.
- This is different from futures contracts, which may trade at significantly different prices due to basis.
Each perpetual contract has its own details, which can be found in its contract details. Details include:
- ERference index
- Funding rate
- Highest leverage
Perpetual contracts do not require traders to use 100% collateral as margin, so you can use up to 100x leverage on some contracts on BitMEX.
Margin on BitMEX is denominated in Bitcoin and other cryptocurrencies, allowing traders to speculate on the future value of its products using only Bitcoin or other cryptocurrencies.
The perpetual contracts offered by BitMEX have inverse, linear and dual currency structures.
This document explains the main differences between these structures and some of the implications for traders.
This product is suitable for traders who prefer to hold positions for a long time and do not want the value of their positions to be affected by basis fluctuations.
What is a quanto contract?
Dual currency is a derivative in which the underlying asset is denominated in one currency, but the product itself is settled at a fixed exchange rate in another currency.
This is how BitMEX’s dual currency perpetual works.
These contracts are designed to be easy to trade and understand, but when trading keep in mind that your base margin and profit and loss are in Bitcoin.
When trading dual currency perpetual, even if the underlying and quote currencies are not Bitcoin, you will still be exposed to Bitcoin/USD price risk.
What is an inverse contract?
The value of the inverse contract is a fixed amount in the quote currency.
For XBTUSD perpetual, each contract is worth 1 USD corresponding to Bitcoin, regardless of the Bitcoin price.
XBTUSD is an inverse contract because it is quoted as XBT/USD, but the underlying is USD/XBT or 1/(XBT/USD).
It is quoted in reverse to facilitate hedging against dollar amounts, whereas spot market practice is to quote dollars per bitcoin.
This product is suitable for traders who want to go long or short USD/BTC.
What is a linear contract?
Linear structures are the easiest to describe and can be used for many swaps.
The price of a linear contract is expressed as the price of the underlying asset against the base currency.
The mechanism of the perpetual market
When trading perpetual contracts, traders need to understand several mechanisms of the futures market.
The key parts that traders need to pay attention to are:
- Multiplier: How much is a contract worth? You can view this information under the contract details for each product.
- Position Marking: Perpetual contracts use the Fair Price Marking method. The mark price determines unrealized profit and loss as well as forced liquidation.
- Initial and Maintenance Margin: These key margin levels determine how much leverage you can use and at what price a liquidation will occur.
- Funding Fee: When a funding fee occurs (every 8 hours), any open position in the perpetual swap will pay or receive a funding fee.
Traders can observe the current funding rate of the contract under “Contract Details” in the lower left corner of the trading options page. Again, you can find this rate in the respective “Contract Details”.
Funding charges are generated every 8 hours at 4:00, 12:00 and 20:00 Beijing time.
You will only be charged or charged funding fees if you hold a position at these points in time.
If you close your position before the funding fee exchange, then you do not need to pay or receive funding fees.
The funds you pay or receive are calculated as follows:
Funding = Mark Value * Funding Rate
Your token value has nothing to do with leverage.
For example, if you hold 100 XBTUSD contracts, funds will be charged/received at the notional value of those contracts, not based on how much margin you have allocated to the position.
When funding rate positive, longs pay shorts. When funding rates are negative, shorts pay longs.