A perpetual contract is a financial derivative that enables investors and traders to go long or short on cryptocurrencies (or other assets). In contrast to trading the underlying asset directly, perpetuals offer leverage and a simple way of shorting an asset, enabling traders to profit from bull or bear markets.
To keep the price of the perpetual contract in line with the index that represents the asset being traded, regular payments between buyers and sellers are used. Hence, perpetuals are also known as ‘perpetual swap contracts’ since payments are swapped between counterparties on a periodic basis.
Trading perpetuals contracts is similar to trading futures, except that with perpetuals the contracts never expire and represent the perpetual price of a claim on an index. For instance, the Interdax BTC-PERP index is calculated using statistical methods applied to the price of BTC-USDT across major spot markets.
Perpetuals provide two main benefits over futures with expiry for investors/traders:
- With no expiry date for perpetuals, traders are not required to roll over their futures contracts from the front month to a further out month.
- Perpetuals generally trade closer to the spot price since periodic payments close the gap between the perpetuals prices and the underlying index price.
Interdax offers a perpetual contract for bitcoin, settled in the underlying asset.
Trading with a Bitcoin Perpetual Contract
Suppose you want to take a long position on a bitcoin perpetual contract, this means you will buy bitcoin contracts now and sell them at a later date. You enter the trade when bitcoin is at $9,357.5 and use a leveraged position to trade $100,000 worth (or 10.6866 BTC worth) of contracts.
Each contract is equivalent to 1 USD and is settled in bitcoin. If you wanted to open a position of 5 BTC and the price of bitcoin is $9,000, you will have to buy 45,000 contracts.
You can use the order box to buy or sell at market or using a limit order.
First, you must have enough in your BTC account to cover the initial margin to open the position. The initial margin of $1,000 or 0.0993 BTC is what backs your leveraged trade, acting as collateral. The formula page in the Help Centre displays the calculation of initial margin.
Once you have submitted your order and it is processed, your position will appear in the positions panel at the bottom of the screen.
The positions panel displays information such as the size of your position, the mark price, liquidation price, margin used, leverage and realised PnL.
The mark price, defined as the estimate of the true value of a contract, and is used to prevent any unfair liquidations due to a highly volatile market. Statistical methods are used to calculate the mark price from the spot prices for the underlying asset on the exchanges with the deepest order books.
The liquidation price is the price at which you are no long able to meet the maintenance margin requirement - the formula for maintenance margin can be found on the Formulas page of the Help Centre. If the liquidation price is reached, all positions in that particular asset will be cancelled/closed and your initial margin will be lost.
The margin column tells us the amount of margin that has been used. You can also check the amount of margin used using the browser panel and clicking on Margin:
The leverage used is also displayed in the positions panel. To increase your leverage, you can increase the size of your open position.
You can also specify leverage by creating and sub-account and moving funds there. For example, if you wanted to go long using 30:1 leverage, you could fund a sub-account with 0.1 bitcoin and enter a position of 30,000 contracts (assuming the bitcoin price is $10,000).
The realised PnL column shows the profit or loss of your perpetual contract position and are determined using limit or fill prices. The PnL can be immediately used to open new positions, transferred to a sub-account or withdrawn.
To close a position, you must enter an equivalent order in the opposite direction (for example, if you are short 100,000 contracts of BTC-PERP, you must buy 100,000 contracts to fully close the position).