Speaking of perpetual contracts, in fact, it is a type of contract trading. A futures contract is a contract that both parties agree to settle at a certain time in the future. In the futures market, the real exchange of commodities often only occurs when the contract expires. at the time of delivery. A perpetual contract is a special futures contract with no expiry date. In a perpetual contract, we as investors can hold the contract until the position is closed. Perpetual contracts also introduce the concept of spot price index, so its price will not be too different from the spot price. Many investors who want to do perpetual contracts are more concerned about how much the perpetual contract fee is?
How much is the perpetual contract fee?
A perpetual contract is a special type of futures contract. Unlike traditional futures, perpetual contracts have no expiry date. Therefore, in the perpetual contract transaction, the user can hold the contract until the position is closed. In addition, the perpetual contract introduces the concept of spot price index, and through the corresponding mechanism, the price of the perpetual contract returns to the spot index price. Therefore, unlike traditional futures, the price of the perpetual contract will not deviate from the spot price most of the time. too much.
The initial margin is the minimum margin required by the user to open a position. For example, if the initial margin is set to 10% and the user opens a contract worth $1,000, the required initial margin is $100, which means the user gets 10x leverage. If the free margin in the user’s account is less than $100, the open trade cannot be completed.
The maintenance margin is the minimum margin required by the user to hold the corresponding position. If the user’s margin balance is less than the maintenance margin, the position will be forcibly closed. In the above example, if the maintenance margin is 5%, the maintenance margin required by the user to hold a position worth $1,000 is $50. If the maintenance margin of the user is lower than $50 due to a loss, the system will close the position held by the user. position, the user will lose the corresponding position.
The funding rate is not a fee charged by the exchange but is paid between the long and short positions. If the funding rate is positive, the long side (contract buyer) pays the short side (contract seller), and if the funding rate is negative, the short side pays the long side.
The funding rate consists of two parts: the interest rate level and the premium level. Binance fixed the interest rate level of perpetual contracts at 0.03%, and the premium index refers to the difference between the perpetual contract price and the reasonable price calculated based on the spot price index.
When the contract is over-premium, the funding rate is positive, and the long side needs to pay the short side the funding rate. This mechanism will prompt the long side to close their positions, and then prompt the price to return to a reasonable level.
Perpetual Contract Related Issues
A forced liquidation will occur when the user’s margin is lower than the maintenance margin. Binance sets different margin levels for positions of different sizes. The larger the position, the higher the required margin ratio. Binance will also adopt different liquidation methods for positions of different sizes. For positions under $500,000, all positions will be liquidated when liquidation occurs.
Binance will inject 0.5% of the contract value into the risk protection fund. If the user account exceeds 0.5% after liquidation, the excess will be returned to the user account. If it is less than 0.5%, the user account will be reset to zero. Please note that additional fees will be charged for forced liquidation. Therefore, before the forced liquidation occurs, the user is better to reduce the position or replenish the margin to avoid forced liquidation.
The mark price is an estimate of the fair price of the perpetual contract. The main function of the mark price is to calculate the unrealized profit and loss and use this as the basis for forced liquidation. The advantage of this is to avoid unnecessary forced liquidation caused by the violent fluctuation of the perpetual contract market. The calculation of the mark price is based on the spot index price plus a reasonable spread calculated from the funding rate.
Profit and loss can be divided into realized profit and loss and unrealized profit and loss. If you still hold a position, the profit and loss of the relevant position is the unrealized profit and loss, and it will change with the market. On the contrary, the profit and loss after closing the position is the realized profit and loss, because the closing price is the transaction price of the contract market, so the realized profit and loss has nothing to do with the mark price. Unrealized profit and loss are calculated at the mark price, and it is usually the unrealized loss that led to the forced liquidation, so it is particularly important to calculate the unrealized profit and loss at a fair price.
Compared with traditional contracts, perpetual contracts must be settled and delivered on the delivery day because traditional contracts have a fixed delivery period, while perpetual contracts have no delivery period, so we as investors can hold positions for a long time., which is not affected by the delivery period, and is a more flexible contract type. As we introduced above, another feature of perpetual contracts is that its price is moderately anchored to the price of the spot market. Because perpetual contracts introduce the concept of price index, it will make perpetual contracts through corresponding mechanisms. The price of the renewal contract remains anchored to the spot market.
Post time: May-27-2022