Financial Derivatives with No Delivery Date: All Things You Need to Know about CoinEx Perpetual Contracts
In the crypto world, we often hear about perpetual contract trading. Unlike spot trading that follows the traditional trading principle (that is to buy at a lower price and sell at a higher price), perpetual contract trading refers to transactions where buyers and sellers agree to trade certain assets at a specified price at a certain time in the future. Contracts can be divided into traditional fixed-term contracts and perpetual contracts by delivery means. The main difference between the two lies in that the former have a fixed delivery date while the latter do not.
No delivery date, up to a hundred-fold leverage
In general, perpetual contracts are financial derivatives that invest in digital currencies and also digital currency contract products that are settled in cryptocurrencies such as BTC and USDT. Investors can benefit from the rising token prices by long trade or from the falling prices by short trade.
Compared with traditional contracts, perpetual contracts boast four major advantages, namely: no delivery date, support for 100-fold leverage, multiple mechanisms against forced liquidation, and zero clawback for liquidation.
Below are more details.
- No delivery date
That means you can hold unlimited positions and trade 24 hours a day, without a settlement time limit. Just make trading decisions based on predictions of rises and falls, and then you can enjoy benefits from the rising or falling prices of digital currencies.
- Support for up to a hundred-fold leverage
CoinEx perpetual contracts provide threefold-to-a-hundredfold leverage! You can flexibly adjust the leverage ratio according to the market trend. When making a profit, you can increase the leverage to amplify the profit, throwing a sprat to catch a herring; when suffering losses, you can add the margin or lower the leverage to reduce the risk of forced liquidation.
- Multiple mechanisms against forced liquidation
CoinEx uses a reasonable mark price which is uniquely designed. It is also the result of the weighted calculation of many mainstream exchanges to reduce market deviation. In addition, CoinEx adopts a funding-rate mechanism to ensure that the contract price is basically the same as the spot price.
The funding fee is not the fee charged by the exchange but a payment between the long buyer and the short seller, so that the transaction value is close to the spot index. To put it simply, CoinEx does not charge any funding fees, and instead, such fees are collected between users. Under such a mechanism, if the contract price deviates, the funding fee can make it return to the spot price, which also avoids price manipulation and malicious liquidation.
- Zero clawback for liquidation
The insurance funds and Auto Deleveraging (ADL) protect investors from sharing losses from liquidation that other traders suffer, thus safeguarding investors’ interest.
Besides, CoinEx supports USDT-margined contracts and Coin-margined contracts. USDT-margined contracts use USDT as the settlement currency, and coin-margined contracts are settled in the trading currency.
Coin-margined Contracts vs. USDT-margined Contracts
What is the trading process of perpetual contracts like?
Let’s take the long trade of USDT-margined contracts as an example to briefly introduce the trading process of a perpetual contract: When the price is expected to rise, what should we do to gain multiple profits?
Suppose you have a principal of 1,500 USDT, and you believe the price of BTC will rise. At the moment, the price has risen from 15,000 USDT to 20,000 USDT. If you use tenfold leverage for a long trade of BTC/USDT in the market of USDT-margined contracts, how much will you get? Let’s calculate the profit and loss as below:
1 * (20,000–15,000）=5,000 USDT；
If you only use your own 1,500 USDT for cross spot trading, you can only make a profit of 500 USDT; yet with the tenfold leverage through perpetual contracts, the income will increase tenfold.
(Note: To facilitate the above calculation, the premium, margin profits and losses, transaction fees and funding fees are ignored)
As you can see, when you expect the price of BTC to rise, you need to open a position/buy BTC at a lower price, and then close the position/sell BTC at a higher level after the price goes up to the expected value. Then you can profit after settlement. The entire perpetual contract trading process involves the following steps:
1. Enter the perpetual contract trading page
2. Transfer assets to the perpetual account
3. Set the margin mode and adjust the leverage
4. Open a position/buy BTC at a lower price
5. After the token price rises to expectations, close the position/sell BTC at a higher price
6. Transfer assets in the perpetual account to the spot account
Newbie-friendly Tutorial: Steps of Perpetual Trading on CoinEx
So how can we trade perpetual contracts on CoinEx? Let’s take the long trade of BTC by the cross margin mode with tenfold leverage in the BTC/USDT market as an example to demonstrate the process step by step:
Step 1: Enter the perpetual contract trading page
Visit www.coinex.com in an explorer, and after signing in, click [Perpetual] on the top navigation bar to enter the perpetual contract trading area.
After entering the perpetual contract trading page, select USDT-M Contracts in the market display area and then the specific market where the perpetual contracts are traded (here we take BTC/USDT as an example);
Step 2: Transfer assets to the perpetual account
On the perpetual contract trading page, click [Transfer], select [Spot Account] and [Perpetual Account] and [USDT] in Coin Type, set the [Amount], and click [Submit] to transfer USDT.
Step 3: Set the margin mode and adjust the leverage
Here we take Leverage: Cross Margin 10X as an example. Select [Cross] for the margin mode and [10X] for the leverage;
Step 4: Open a position/Buy BTC for a lower price (take limit orders for example):
- In the BTC/USDT perpetual market, set the [Price] and [Amount] and then click [Buy BTC].
2. When the order is completed, BTC is bought/long trade of BTC is done. You can check details in [Current Position].
Step 5: After the BTC price rises to expectations, close the position/sell the BTC at a higher price
Below are two methods
Method 1: Close the position in the order area (here we take limit orders for example)
In the “Transfer” area of the BTC/USDT perpetual contract market, set the [Price] and [Amount] and then click [Sell BTC]. When the order is completed, the position is closed/BTC is sold;
(Note: In the “Transfer” area, if you want to completely close the position, the amount must be the same as the position; if the amount is greater than the position, the position will go the opposite direction after the order is completed.)
Method 2: Close the position at the current position (here we also take the limit orders for example)
Set the [Price] and [Amount] on the BTCUSD contract market, and then click [Close Position] to complete the delegation. When the order is executed, the close/sell will be completed.
Step 6: Transfer the assets to the spot account
Click [Transfer], select [Spot Account] and [Perpetual Account] and [USDT] in Coin Type, set the [Amount], and click [Submit]to transfer USDT.
At this point, we have gone through the entire process of perpetual contract trading. But here is a reminder: perpetual contract trading allows you to gain considerable profits with relatively small funds, but huge losses would occur if you made a wrong judgment. To prevent forced liquidation, it is suggested ordinary traders should not hold heavy positions with high leverage. A hundredfold leverage sounds good, yet remember to control your desire.