Introduction to Perpetual Contracts

# Introduction to Perpetual Contracts

# What are Perpetual Contracts

Overview

Perpetual contracts are futures contracts that can be held indefinitely without expiration or delivery. Users can profit from price increases/decreases by choosing to buy (go long) or sell (go short) the contracts based on their market prediction.

Key Points

Expiration Date: Each delivery contract has a fixed expiration date, at which all open positions are settled and closed at the delivery price, calculated as the arithmetic average of the BTC (or other cryptocurrency) USD index over the most recent hour. Perpetual contracts, however, have no expiration or delivery date - they never expire.
Funding Fee: Since there is no expiration date, perpetual contracts use a "funding fee mechanism" to anchor the contract price to the spot price.
Mark Price: Perpetual contracts use mark price to calculate users' unrealized profit and loss, effectively reducing unnecessary liquidations during market volatility.
Settlement Every Minute: Through settlement every minute, unrealized profit and loss is converted to realized profit and loss, increasing funding flexibility.
Ladder Maintenance Margin Rate System: The maintenance margin rate is the minimum margin ratio users need to maintain their current positions. When the margin ratio falls below the maintenance margin rate + closing fee rate, it triggers liquidation or forced partial position reduction. For users with different position sizes, a ladder maintenance margin rate system is implemented - the larger the user's position, the higher the maintenance margin rate, and the lower the maximum leverage available.
Forced Partial Position Reduction: For users with larger positions, when the margin ratio falls below the current tier's maintenance margin rate + closing fee rate, but remains higher than the lowest tier's maintenance margin rate + closing fee rate, the system won't immediately liquidate all positions. Instead, it calculates how many contracts need to be reduced to lower the position by two tiers and performs a partial reduction. After successful reduction, if the margin ratio meets the new tier's maintenance margin rate requirement, partial reduction stops; if it still doesn't meet the new tier's requirement, the partial reduction process continues in a loop. In isolated margin mode, during forced partial reduction, the position is frozen and no operations can be performed; in cross margin mode, during forced partial reduction, the account for that currency is frozen and no operations can be performed.

# Overview

Perpetual contract trading involves multiple important concepts and mechanisms. Below is an introduction to the core content:

# Funding Rate

The funding rate is the price rebalancing mechanism for perpetual contracts. Unlike traditional contracts that need to be settled at expiration, perpetual contracts have no expiration or delivery, so they use a "funding rate mechanism" to anchor the contract price to the spot price. Users pay or receive funding fees based on their position direction and the current funding rate.

# Mark Price

To improve contract market stability and reduce unnecessary liquidations during market abnormal fluctuations, perpetual contracts use mark price to calculate users' unrealized profit and loss and trigger forced reductions. Mark price is typically calculated based on the index price and considering funding rate factors.

# Index Price

Index price is an important component of perpetual contracts, used to ensure contract prices are anchored at a reasonable market price level. Index price is typically calculated as a weighted average of prices from multiple spot exchanges, preventing market manipulation and reducing the impact of price volatility from a single exchange.

# Ladder Liquidation Mechanism

The ladder liquidation mechanism is an advanced risk control mechanism in perpetual contracts, designed to reduce users' positions in stages, avoiding users being completely liquidated during market volatility, thereby reducing user losses. Different adjustment factors and margin requirements are applied based on the size of users' positions.

# Insurance Fund

The insurance fund is an important risk control mechanism in the perpetual contract trading system, mainly used to handle position losses that cannot be balanced due to forced liquidation orders, ensuring the stability of the contract market and the safety of user funds. In extreme market conditions, the insurance fund will be the first to bear this part of losses.

# USDT-margined vs Coin-margined Contracts

In perpetual contract trading, contracts can be divided into USDT-margined contracts and Coin-margined contracts based on the different settlement assets. These two types of contracts have significant differences in pricing units, profit and loss calculation, risk management, etc., and are applicable to different traders and market environments.

# ADL (Auto-Deleveraging)

Auto-Deleveraging (ADL) refers to a forced liquidation mechanism adopted by the platform to control overall platform risk when counterparty positions are insufficient, extreme market conditions or force majeure factors cause the insurance fund to rapidly decline. When ADL is triggered, the ADL engine will select users with the highest leverage return rate on the platform to reduce their positions.

# USDT-margined Perpetual Contracts

# USDT Perpetual Contract Introduction

USDT-margined perpetual contracts are derivative products that use USDT as margin and settlement currency. In this type of contract, all profits and losses are denominated in USDT.

# Leverage and Position Limit (USDT-margined)

USDT-margined perpetual contracts offer flexible leverage options, allowing traders to select leverage levels that match their risk tolerance and trading strategy. The maximum leverage available varies by contract and position size, with the highest leverage being 125x for certain contracts.

# USDT-margined Ladder Maintenance Margin Rate

The ladder maintenance margin rate system for USDT-margined perpetual contracts is a risk management mechanism that applies different maintenance margin requirements based on position size. This tiered approach ensures that larger positions, which pose greater systemic risk, maintain higher margin ratios.

# USDT-margined Margin and PnL Calculations

Understanding how margin requirements and profit/loss (PnL) are calculated is essential for effectively trading USDT-margined perpetual contracts. This guide explains the key calculations and concepts related to margin and PnL for USDT-margined contracts.

# Coin-margined Perpetual Contracts

# Coin-margined Perpetual Contract Introduction

Coin-margined perpetual contracts are derivative products that use the underlying cryptocurrency (such as BTC, ETH) as both the collateral and settlement currency. Unlike USDT-margined contracts, profits and losses in coin-margined contracts are calculated and settled in the underlying cryptocurrency itself.

# Leverage and Position Limit (Coin-margined)

Coin-margined perpetual contracts offer traders the ability to use leverage while using the underlying cryptocurrency as margin. The maximum leverage available decreases as position size increases.

# Coin-margined Ladder Maintenance Margin Rate

The ladder maintenance margin rate system for coin-margined perpetual contracts is a risk management mechanism that applies different maintenance margin requirements based on position size. This tiered approach ensures that larger positions, which pose greater systemic risk, maintain higher margin ratios.

# Coin-margined Margin and PnL Calculations

Understanding how margin and profit/loss (PnL) are calculated for coin-margined perpetual contracts is essential for effective trading and risk management. This guide explains the key calculations and concepts specific to coin-margined contracts.

# Trading Features

# Perpetual Contract User Guide

A comprehensive guide to using perpetual contracts, covering how to access the trading interface, place orders, manage positions, and understand various contract settings.

# Cross Margin and Isolated Margin Modes

Perpetual contracts offer two margin modes: Cross Margin and Isolated Margin. Each has distinct characteristics and is suited for different trading strategies and risk management approaches.

# One-way and Two-way Position Modes

Perpetual contracts provide two position modes: One-way Position Mode and Two-way Position Mode. Each mode offers different approaches to managing long and short positions, catering to different trading strategies and preferences.

# Conditional Orders

Conditional orders are advanced order types that are triggered only when certain market conditions are met. They allow traders to set up automated trade entries and exits based on price movements.

# Take Profit, Stop Loss (TP/SL)

Take Profit and Stop Loss (TP/SL) are essential risk management tools for traders in perpetual contract markets. These order types allow you to automatically close positions when certain price levels are reached.

# Take Profit Stop Loss Order

Take Profit Stop Loss Orders (TP/SL Orders) are advanced risk management tools that allow you to set predefined exit points when submitting an entry order.

# Contract Grid

Contract Grid Trading is an automated strategy that systematically places buy and sell orders at predetermined price intervals within a specified range.

Zbit Help Center

Choose mode