## Perpetual Contract

February 1, 2020 The Word Perpetual indeed "never-ending”. As a technical trader, it gives me more interest than how it can be a never-ending contract in trading and with a lot of reason I get more questions in; What type of maturity it deals with? , how you make a profit calculation for the seller and buyer in a perpetual contract? .Am trying to break it down my exclamatory feeling and perpetual contract in this blog

What is Perpetual Contract?

As defined "A Perpetual Contract is a derivative product that is similar to a traditional Futures Contract, but has few differing specifications like there is no expiry or settlement

The perpetual contract is a derivative of a base and quotes currency like Future Contract of the Equity market. A Dramatic change is it does not have expiry.

How Perpetual Contract pay the funding?

In this never-ending contract, the trader will get funding on 3 times per day in a periodical interval of 8 hours if he holds the position on funding on 04:00 UTC, 12:00 UTC, and 20:00 UTC.

How the funding was calculated?

The perpetual contract uses a unique funding rate which does not allow the market to manipulate in either one direction. Further adding more accurate to the contract it uses Index of both quote and base currency, the position value of the contract and premium index which is calculated based on asking and bid price impact.

Perpetual Contract Formula

Position Value Calculation

Position value = Total contract * 1/ Price

Where Total Contract - no of contract

2.  Funding Rate Calculation

Funding  = Position Value * Funding Rate

3. Funding Calculation

Interest Quote Index = 1.00% per day

Funding Rate = ( Interest Base Index - Interest Quote Index) / 3

Where 3 is funding paying interval happen per day.

4. Funding Amount Calculation

Funding Amount = Position Value * Funding Rate

Example

 Term Terms Example Result Postion Value Calculation Total contract = 10000 SC Price = 450\$ TotalContract * 1/Price 10000 * 1/450 Position value is 22.2 Funding Amount Calculation Funding Rate = 0.25 Funding Rate * Position Value    22.2* 0.25 5.55 Profit at First 3 Time Zone 5.55 Base Currency

Premium Index = (max(0,impact bid price - mark price) - max(0,mark price - impact ask price)) /spot price + fair basis used in mark price

The Perpetual Contract is a strategically good approach for bringing an option contract to the crypto world. Bitmex is an exchange that implements a perpetual contract and running successfully.