Introduction to Perpetual Futures
Perpetual Futures is a financial derivative product launched by BKEX.
To help you better understand, we will introduce the characteristics of perpetual contract, the main differences between perpetual contract and spot trading and traditional contract trading through this article.
What is a perpetual contract?
A perpetual contract is a financial derivative.
It has the following two characteristics:
- The perpetual contract has no expiration date.
- The perpetual contract uses the funding rate mechanism to make the trading price of the perpetual contract close to the corresponding spot price.
Types of perpetual contracts
The BKEX digital currency trading platform provides forward perpetual contract tradings with a leverage of up to 100 times.
More perpetual contract trading targets and derivatives hedging tools will be launched one after another.
Currently, the platform only accepts USDT as the margin for all contract tradings, and all products are priced in USDT.
Differences between spot trading and contract trading
The contract is different from the spot market.
The two counterparties of the trading will not settle immediately, but will settle on a clearly agreed future date.
There is a further difference between the perpetual contract market and the spot market, that is, the perpetual contract has no expiration date.
Differences between perpetual contracts and delivery contracts
Perpetual contracts are similar to futures contracts.
The main difference is that perpetual contracts have no expiration date or settlement date.
In addition, the perpetual contract inherits the characteristics of the delivery contract, especially without the need to deliver the actual commodity, and imitates the behavior of the spot market to reduce the gap between the contract price and the marked price.
This is a big improvement over traditional contracts, which have a long-term/fixed price difference from the spot price.
Features of BKEX Perpetual Contract
1. Double price mechanism: Increase the difficulty of price manipulation
Market manipulation is the act of maliciously manipulating trading prices to obtain personal benefits.
Such abnormal price fluctuations may lead to malicious liquidation of positions, thus forming a very unfair trading environment.
In order to reduce the possibility of the market being maliciously manipulated, BKEX uses a dual price mechanism to ensure a fair trading environment.
Currently, most exchanges use the latest market price as the trigger for forced liquidation.
However, BKEX uses a reasonable mark price as the trigger point for forced liquidation, rather than the latest market price on the platform.
The mark price is calculated by referring to the spot prices of the three major spot exchanges in real time. Therefore, even BKEX has no ability to affect the mark price.
2. Always anchor the spot market price
Another feature of the BKEX perpetual contract is that the trading price is always anchored to the spot market price without huge deviation.
The cost of funds is an important means used to ensure this goal.
BKEX calculates the funding fee by weighing comprehensive factors such as the long-short side trend of the perpetual contract trading every 8 hours, and one of the long-short parties pays the other party, so as to ensure that the trading price of the perpetual contract is always anchored to the spot price.
Funding fees are generated every 8 hours, and are collected at 8:00 in the morning, 16:00 in the afternoon, and 24:00 in the evening.
3. Flexible leverage up to 100x
The spot leveraged trading market generally provides 3-5 times leverage, and the cost of borrowing is also relatively high.
In the futures market, several major trading platforms only provide leverage of 5-20 times.
However, the BKEX perpetual contract provides up to 100 times leverage.
Traders can flexibly adjust after opening positions according to trading needs.
While the platform provides a flexible gradient margin system, it ensures the best trading experience for traders.
4. The automatic lightening mechanism ensures the interests of traders
BKEX adopts a complete liquidation mechanism to ensure the interests of traders.
This mechanism is used to determine who bears the loss caused by the position being unable 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.
BKEX adopts an automatic position reduction mechanism to ensure that the interests of traders are not affected by the huge losses caused by a small number of high-risk speculators.
The automatic position reduction system sorts according to the profit percentage and effective leverage of the customer’s position.
That is, traders with high returns and high leverage will be selected first.
Market Mechanism of Perpetual Contracts
Leverage: BKEX provides different leverage levels for different products, and the maximum leverage can reach 100 times.
Leverage is determined by the initial margin and maintenance margin levels.
They determine the minimum capital a trader needs to open and maintain a position.
Leverage is not a fixed multiple, but a minimum margin requirement. You can view the minimum amount of initial margin and maintenance margin on the risk limit document page.
- Opening value: average opening price * opening quantity
- Holding value: opening quantity * marked price
- Unrealized profit and loss: the profit and loss of the current contract position held by the trader, also known as floating profit and loss.
- Realized profit and loss: It is the accumulated profit and loss generated by the trader’s closed position before the contract is settled.
- Profit: The realized profit that has been settled since the position was opened + the unrealized profit since the last settlement.
- Profit rate: = income/margin required when opening a position = income/(opening quantity * average opening price/leverage).