- Perpetual futures contract
A perpetual futures contract is a financial instrument that derives its value from an underlying digital asset. It is different from a traditional futures contract in the following respects: first, there is no expiration or settlement of a perpetual contract; second, the prices of assets traded as perpetual contracts are close to their spot market prices, while those of assets traded as traditional futures contracts might differ from their spot market prices; third, the funding rate mechanism keeps perpetual futures contract prices in line with spot markets.
- Forward contract
Forward contracts are also known as USDT-margined contracts, such as trading BTC in USDT. Quoted and settled in the same currency, forward contracts are the most easy-to-use contract products. Poloniex's perpetual futures contracts are USDT-margined forward contracts. Users can trade futures contracts of multiple popular cryptos simply with USDT, without having to hold the corresponding currencies. The USDT-margined forward contract is quoted and settled in USDT, making it easier for users to calculate profits.
Futures trading mechanism
|
Term |
Definition |
|
Price marking |
Forward contracts adopt fair price marking, which determines a position's unrealized PNL and liquidation price. |
|
Initial margin |
The initial margin is the margin required to create a position. |
|
Maintenance margin |
The maintenance margin is the minimum amount of equity users must maintain in their margin accounts to continue holding their positions. |
|
Funding rate |
The funding rate mechanism is designed to keep perpetual contract prices in line with spot markets. When the funding rate is positive, traders who are long pay and those who are short receive funding fees. Conversely, a negative rate indicates that shorts pay and longs receive; traders pay or receive funding fees every eight hours only if they hold an open position at the funding timestamps 04:00 UTC, 12:00 UTC, and 20:00 UTC. |
|
Leverage |
Futures trading allows users to trade at preferred leverage levels. Poloniex currently supports leverages ranging from 1X to 100X. |
|
Cross margin |
In the cross margin mode, all available balances in a futures account can be used as margin to prevent forced liquidation of the account. Margin on a losing position can be compensated for by any realized profit in other positions. |
|
Isolated margin |
In the isolated margin mode, margin on a position to be liquidated cannot be increased by available balances of other positions. By isolating the margin used for a position, traders are able to limit losses to the amount of the position's initial margin. This can save traders from liquidation when a short-term investment strategy fails. |
|
Index price |
The index price is determined by the weighted prices from a selection of mainstream crypto exchanges. The crypto exchange and weight of different contract index prices are determined by the operations team and may vary with different perpetual futures contracts. You could view the index price in the information bar of the futures market. |
Example: a guide to USDT-margined BTC perpetual futures contract (BTCUSDTPERP)
|
Multiplier |
0.001 |
|
Value of a contract |
0.001 BTC |
|
USD value of a contract |
Multiplier * BTCUSDTPERP price |
|
P&L calculation |
Number of contracts * Multiplier * (Exit price - Entry price) |
You could view the contract details in Futures Guide.
Traders who are long this contract can make a profit if the BTC/USDT price rises. On the contrary, traders who are short will make a profit if the BTC/USDT price drops.
For example, a trader goes long 1,000 contracts at a price of 10,000 USDT. This means they are long 1,000 * 0.001 = 1 BTC. After several days, the price rises to 11,000 USDT, so the trader will earn a profit of 1,000 * 0.001 * (11,000 - 10,000) = 1,000 USDT. On the contrary, a trader who goes short the same amount of contracts will lose 1,000 USDT in this case. (Fees are not included.)