In trading, “futures contracts” entail an obligation to buy or sell an asset in the future at a pre-determined price. A perpetual swap is a special derivative product which it does not have a specified settlement date, meaning traders may choose to hold the position as long as they want and need not deal with the hassle of position closure and rollover. The perpetual swap on BIT can be settled daily. Upon settlement, the realized and unrealized profit & loss will be shown in the account balance.
Perpetual Swap uses a spot price index as a reference price. Through well-designed mechanisms like mark price and funding, the perpetual swap market traded price is always “anchored/benchmarked” to the spot price index, achieving a better price convergence with the spot market in general.
Some Key Specifications of Perpetual Swap on BIT:
Margin: BIT implements ~2% initial margin and ~1.5% maintenance margin, which is about 3 times higher than the market average, reducing the leverage to a healthier level and placing less pressure on the liquidation system. Moreover, when users fall short of the minimum maintenance margin requirement, the user’s positions will be liquidated incrementally rather than completely. In this way, users get to have more control of their accounts.
Funding Rate: Unlike traditional futures, a perpetual swap does not have a pre-determined expiry date. Funding rate, therefore, plays a key role in adjusting the supply and demand, i.e. the convergence from Mark Price to Index Price.
- When perpetual swap trades above index price (Mark Price > Index Price), long perpetual accounts will be required to pay a funding fee to short perpetual accounts, so as incentive short trades.
- When perpetual swaps trades below index price (Mark price < Index Price), short perpetual accounts will be required to pay a funding fee to long perpetual accounts, so as incentive long trades
Funding fee Settlement Time: every 8 hours
Differences between Perpetual Swaps & Futures:
There is no pre-determined expiry or settlement date for perpetual swaps, so one can carry the position for an indefinite time;
Perpetual swaps are settled once a day; futures, on the other hand, are settled periodically (weekly/monthly/quarterly) depending on its design;
Since perpetual swaps do not have a pre-determined expiry date, closing position or rollover due to settlement/delivery can be avoided, implying that extra trading fees associated are minimized;
For perpetual swaps, regular rebalancing between the long and short is achieved during the daily settlement via the funding mechanism. If the funding rate is positive (Mark Price > Index Price), long accounts will be required to pay short accounts so as to incentive short trades, and vice versa if the funding rate is negative.
Perpetual swaps have no restricted trading time, meaning one may open and close positions at any time. For futures, one is restricted to open new position that is only allowed to close positions as it comes to a certain period before settlement/delivery.