Perpetual Contract Overview
Perpetual contract is an innovative financial derivative. Regarding trading rules, it is similar to the traditional futures contract, where investors don't need to hold the relevant asset, but can profit by predicting price movements and deciding whether to go long or short. The difference is that perpetual contracts have no expiration or settlement date and users can hold them for an extended period.
Advantages of TruBit Pro Perpetual Contracts
- No Settlement Date
The futures contracts have a predetermined settlement date, which is much like commodity and Index futures in the traditional finance world. However, perpetual contracts have no settlement date allowing traders to hold positions for a more extended period to achieve greater returns on their investments.
- Support multiple currencies as a margin
TruBit Pro enables you to select BTC/ETH/USDT as the contract margin currency to trade all contracts across currencies. Profit and loss of your perpetual contracts will be settled with your margin currency. For example, you have ETH in a contract account, and you choose ETH margin to open an LTCUSDT position on perpetual contract. Any profit or loss of perpetual contract produced by the LTCUSDT position will be settled in ETH.
- Always Anchor to the Spot Market Prices
In the mechanism of perpetual contracts, the system will weigh comprehensive factors such as the long-short trend of the contracts traded on the market every 8 hours, and calculate the funding fee, which is exchanged between the Long and Short sides, thus ensuring that the trading price of the contract is always anchored to the spot market price. Compared with the case where futures contracts move abnormally due to premiums, the market price anchoring mechanism of perpetual contracts is very friendly to technical analysis traders.
- Support 125x maximum leverage adjustable
TruBit Pro perpetual contract provides up to 125 times leverage, allowing traders to flexibly adjust leverages according to their risk tolerance after placing an order. The platform ensures the best trading experience for traders while providing flexible risk protection.
- Employs Auto Deleveraging to protect the interests of traders
The Auto-Deleveraging system will sort traders' positions according to the higher profit percentage. More specifically, the system will reduce positions with higher profit percentages as priority. By doing this, our platform can protect the trader's benefit from significant losses caused by high-risk speculators.
- Adopt portfolio margin model for risk hedging
In cross margin mode, the system settles the profit and loss of your positions and hedges other positions you hold in the same Settlement Coin.
For example, if the user chooses BTC as the Settlement Coin and holds the BTCUSDT, ETHUSDT and EOSUSDT contracts, the profit and loss of these three contracts can be hedged with each other and all settled in BTC.
Leverage, Risk Limits and Settlement
Open the "Contract" menu to enter the contract trading interface. On the order panel, click the Leverage Multiplier and adjust leverage in the pop window.
Since Quanto Swap perpetual contract provides up to 125 times leverage, it may cause huge losses if users use highest leverage to implement the large positions. Therefore, TruBit Pro adopts Risk Limits to mitigate potential losses by liquidations.
Risk Limits depend on the principle of dynamic leverage, which means the high-volume you hold in position, the limit leverage you can apply, and you need to prepare extra initial margin for new positions, and the more initial margin is required for new positions. For more details about risk limits, please check Leverage and Risk Limits.
The settlement coin is the initial coin you choose as margin and for PnL settlement on the order panel. TruBit Pro will convert the initial token to contract token according to the spot exchange rate, and then conduct cross-currency contract operations.
Margin refers to the minimum required balance in the account for a leverage position for a leveraged position. Specifically, starting a position requires Initial Margin and Maintenance Margin to keep the position from getting liquidated. Depending on the trading strategy, TruBit Pro has implemented two different margin modes:
1) Isolated Margin: in this mode, the initial margin and maintenance margin is separated from the the trader's available funds in the position opening process. If the margin on a position falls below the Maintenance Margin level, the position will be liquidated, and in this case the maximum loss will be limited to the total margin of current position. However, you can still choose to increase or reduce the margin for this position.
Customize Leverage for Isolated Margin:
Click on leverage and move the slider on Adjust Leverage window. The further slider you move to the right, the higher leverage you will get, and the less margin will be assigned to the position. Users need to pay attention that leverage changed will affect the actual liquidation price. Meanwhile, you can increase or reduce the margin for one position individually, and the liquidation price will change at the same time.
2) Cross Margin: In this mode, the settlement coin of your funds in the account are utilized among all positions. Under the same Settlement Coin positions, unrealized profits can offset the unrealized loss, or as margin to open a new position. This is also called Portfolio Margin mode.
For example, if a user chooses BTC as margin and opens a position under cross margin mode, the assets in BTC account will be used as margin for this position. If the user has multiple positions under BTC account, any other position that has realized profit can contribute to increasing the margin on the loss position.
Additionally, under the cross margin mode, all contract positions will be closed when the liquidation is triggered.
Types of Position Modes
In One-way Mode, users can only hold positions in one direction (buy or sell) under one contract.
In Hedge Mode, users can hold positions in both long and short directions simultaneously under the same contract to perform risk hedging.
Funding fee is an important mechanism to anchor the spot market price in perpetual contracts. Also, the funding fee is generated every 8 hours during trading period. You will only pay or receive funding fee if you hold a position at one of these times. If you close your position before the funding fee generated, you will not pay or receive funding fee. When the funding rate is positive, users who hold long positions need to pay the funding fee for other users who hold the short positions. Conversely, when the funding rate is negative, the short position holder needs to pay the funding fee for the long position holder.
- Funding Fee = Position Value * Funding Rate
Note that the value of your position is irrelevant to leverage. For example, if you hold a 100USDT BTCUSDT contract, funding will be charged/received at the notional value of position, not based on how much margin you have assigned to that position.
Funding Rate Calculation
This rate ensures the contract trading price follows the spot market Index Price. The system will calculate Funding Rate by sampling the deviation, the price premium, between the contract price and spot market Index Price and update it every 1 hour.
- Funding Rate = MA [ (Contract Price - Index Price)/Index Price]/Adjustment Coefficient
MA: The general setting is 60, which means the system will use the average price premium in the last 60 minutes by default.
Adjustment Coefficient is introduced to reduce price premium distortion caused by the disparity of tick among different contracts. Currently, the adjustment coefficient on all contracts available in TruBit Pro is 1 by default. (TruBit Pro may proceed to change Adjustment Coefficient according to the actual situation of the contract without prior notice.)
Funding Rate Intervals
Funding Rate range is [-0.375%,0.375] for contracts with 125x maximum leverage;
Funding Rate range is [-0.75%,0.75] for contracts with 50x maximum leverage.
TruBit Pro does not charge any funding fees; funding fees are exchanged between users who hold positions at the Timestamp.
- Funding fees will first be deducted from the available balance in the contract account if it's sufficient to cover the payment;
- When the available balance in the account is not sufficient, the system will cancel those pending orders and then deduct the available funds.
- In Isolated Margin Mode, if the available balance is insufficient, the system will deduct the actual and added margin of current positions in order, while in Cross Margin Mode, the system still deducts the account balance even if the available balance is insufficient. In either case, funding fees will affect the liquidation price of related positions.
The index price is calculated by referring to the spot price of several mainstream exchanges in the market, including Binance, Okex, Huobi, Coinbase, Kraken.
It should be noted that the reference exchanges may be removed from the system due to unpredictable and abnormal factors. For example, if an exchange is out of service and does not post any trades for more than 15 minutes, it will automatically get removed from the index until its trading resumes.
The mark price is calculated based on the sum of the moving average of the index price and the basis, which is mainly used for account PnL and liquidation calculations. (Notice: the forced liquidation is calculated based on the mark price, not the latest transaction price)
TruBit Pro sets a trading protection range for the order price in contract trading based on the index price, and the system rejects orders whose order price locates out of the price range. The upper limit of the price range is used to prevent overpriced buy orders and the lower limit of the price range is used to prevent underpriced sell orders.
In addition, in order to protect the stability of the system, the platform regularly reviews users' high-frequency and very low-holding time trading orders. If the average holding time of an account's orders is less than 5 minutes, and the trading volume of opening and closed positions is more than 80% of the total trading volume, we will consider illegal high-frequency arbitrage activities for those trading behaviors. The platform will suspend the withdrawal and deposit functions of the related profit in the account
In order to maintain a position, an investor must hold a certain percentage of the position value in margin, also known as the maintenance margin. If you are unable to fulfill the margin requirement, the forced liquidation will be triggered and you will lose your maintenance margin. The minimum maintenance margin requirements can be found on the "Leverage and Risk Limits" page.
TruBit Pro uses mark prices to avoid forced liquidation due to a lack of liquidity or market manipulation.
- In isolated margin mode: If the forced liquidation is triggered, the position will be closed.
- In cross margin mode: If the forced liquidation is triggered, all pending orders will be canceled and all positions will be closed.
System's Profits and Losses
If TruBit Pro can activate the forced liquidation at a better price than a liquidation price, the additional money will be put into the insurance fund.
If TruBit Pro is unable to execute the forced liquidation at the liquidation price, then TruBit Pro will expend the insurance fund and attempt to close the position in the market. If the insurance fund is exhausted and TruBit Pro is still unable to execute the forced liquidation for all open orders, the Auto-Deleveraging system will be triggered.
Liquidation Price Calculation
Isolated Margin Mode
- USDT based Margin
Long: [1-(Margin+Additional Margin)*1/(Contract Size*Contract Multiplier)+Maintenance Margin Rate)*Opening Price
Short: [1+(Margin+Additional Margin)*1/(Contract Size*Contract Multiplier)-Maintenance Margin Rate)*Opening Price
- Crypto based Margin
Long: 1.0 / [(1.0 - Maintenance Margin Rate) / Opening Price + (Margin + Additional Margin) / (Contract Size * Exchange Rate)]
Short: 1.0 / [(1.0 + Maintenance Margin Rate) / Opening Price - (Margin + Additional Margin) / (Contract Size * Exchange Rate)]
Cross Margin Mode
- USDT based Margin
Liquidation Price = (longQty - shortQty - cash * cxRate / refData.getValuePerUnit()) / (longQty / longPrice - shortQty / shortPrice - Math.abs(longQty / longPrice - shortQty / shortPrice) * maintenanceMarginRate);
- Crypto based Margin
Liquidation price = (longQty - shortQty) / (longQty / longPrice - shortQty / shortPrice + cash / (refData.getValuePerUnit() * cxRate) - Math.abs(longQty / longPrice - shortQty / shortPrice) * maintenanceMarginRate);
Profit and Loss Calculation
USDT based Margin
Floating PNL = [Contract Size * (Current Price - Entry Price)] / (Current Price*Exchange Rate)
Example 1: Choose USDT as the settlement currency to trade BTC/USDT contracts
At a price of 10,000 USDT for BTC/USDT, User A spends 10,000 USDT to open long and closes it at a price of 15000 USDT.
PNL(Profit and Loss) = [10000 * (15000-10000)/(10000 * 1) = 5000 USDT
Crypto based Margin
Floating PNL = [Contract Size * (Current Price - Entry Price)/ (Current Price* Entry Price)] *Exchange Rate
Example 2: Choose BTC as the settlement currency to trade ETH/USDT contracts
At a price of 400 USDT for ETH/USDT, User A spends 10,000 USDT to open long and closes it at a price of 500 USDT. Suppose the spot rate of ETH/BTC is 0.03 at this time
PNL(Profit and Loss) = [10000 * (500-400)/(400 * 500)] *0.03= 0.15 BTC
Auto-Deleveraging, abbreviated as ADL, refers to a mechanism for the liquidation of counterparty positions to control the platform's overall risk. When the insurance fund is insufficient or drops rapidly due to extreme market conditions or force majeure factors, the ADL system will be triggered;
After the ADL is triggered, the platform will no longer place an order on the market and wait for a suitable price to match the transaction to handle the user's positions which have been forcibly liquidated. Instead, it will find the top account directly in the counterparty's ranking and trade directly with the counterparty's account at the current mark price. The losses will not be split in the platform after the Auto-Deleveraging system processing.
In addition, users who experience Auto-Deleveraging (ADL) will receive an email/SMS notification, all pending orders will be canceled, and users can freely re-enter the market to trade.
Ranking of Auto-Deleveraging (ADL)
The system will count the positions of various margin currencies and calculate the floating profit and loss in a uniform manner using USDT as the settlement currency. When the total profit/loss exceeds the set value (profitThreshold), the positions will be reduced in the ranking of profitability(reducePercent), from highest to lowest, until the set ratio is met.
- Perpetual Contract Overview
- Advantages of TruBit Pro Perpetual Contracts
- Leverage, Risk Limits and Settlement
- Risk Limits
- Settlement Coin
- Margin Mode
- Types of Position Modes
- One-Way Mode
- Hedge Mode
- Funding Fee
- Funding Rate Calculation
- Funding Rate Intervals
- Funding Exchange
- Payment Sequence
- Index Price
- Mark Price
- Transaction Protection
- Forced Liquidation
- System's Profits and Losses
- Liquidation Price Calculation
- Isolated Margin Mode
- Cross Margin Mode
- Profit and Loss Calculation
- USDT based Margin
- Crypto based Margin
- Ranking of Auto-Deleveraging (ADL)