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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.

 

 

Do you want an Exchange Like Bitmex?