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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.
Premium Index is calculated based on Ask and Bid price impact
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.
