The financial market in 2023 is replete with various innovative ways of making money. A quick registration at a crypto or stock exchange gives access to thousands of different financial instruments, allowing people to trade digital or financial assets of different categories. Concentrating on crypto, which is highly volatile, often leads to heavy losses due to market fluctuations and uncertainty. There have not been any relevant solutions to resolve this issue. However, a high-performance crypto exchange, BYDFi, offers perpetual futures contracts to maintain the crypto’s USD value held by its traders in the highly volatile crypto market.
What is a perpetual futures contract?
A perpetual futures contract is a unique type of futures contract that does not have an expiration date. Unlike traditional futures contracts, which have a predetermined price and date for settlement, perpetual futures allow traders to hold their positions for as long as they desire, provided they have sufficient margin. This means that traders can choose when to close their trades and secure their profits or manage their losses.
The concept of perpetual futures contracts was initially proposed by Robert Shiller in 1992 to provide derivatives for illiquid markets. Today, many exchanges offer perpetual futures contracts as a trading option, allowing traders to benefit from the flexibility and extended holding periods they offer.
How do perpetual futures contract work?
Perpetual futures contracts are different from regular futures contracts in that they have indefinite timing, allowing traders to execute their positions whenever they want. Profit and loss remain unrealized until trades are closed, and traders can secure their positions partially or entirely when in profit. Understanding initial and maintenance margins is important, as the amount required to keep trades open changes with market price fluctuations. Perpetual futures contracts use a funding rate to ensure the contract price aligns with the spot market price of the underlying asset. Leverage is available in perpetual futures contracts, but proper risk management is crucial to avoid substantial losses.
BYDFi has implemented a tiered margin system that assigns different levels of leverage based on the value of user positions. Higher positions correspond to lower leverage, and opening a position requires a higher initial margin rate. The maximum leverage allowed decreases as the value of the contract held by the trader increases. Each contract has a designated maintenance margin rate, and margin requirements fluctuate based on changes in risk limits.
The margin and profit/loss calculations for USDT-M perpetual futures contract are straightforward. When trading a 1 BTC contract, a price fluctuation of 100 USDT results in a corresponding gain or loss of 100 USDT for the trader. The profit/loss is directly tied to the USDT value. USDT-M perpetual futures contracts utilize stable coins as margins, eliminating the need for hedging to mitigate currency holding risks.
Why is the BYDFi perpetual futures contract different?
BYDFI provides a maximum leverage of up to 200x on perpetual futures contracts, depending on the currency pairs being traded on the platform. For trading pairs BTC/USDT, ETH/USDT, and PAXG/USDT, the maximum leverage is 200x. For trading pairs XRP/USDT, DOGE/USDT, and 1000SHIB/USDT, the maximum leverage is 150x. These leverage values set BYDFi exchange apart from others that offer maximum leverage for perpetual futures contracts, typically around 100x and 125x.