As different platforms have different mechanisms, the following contents take 【MXC Contract】 as an example:
A Perpetual Contract is a derivative product that is similar to a traditional Futures Contract, but has a few differing specifications:
Perpetual Swap has no delivery date and never expires;
As there is no delivery date, a funding cost mechanism is used to ensure that the Perpetual Swap price is anchored to the spot market;
When trading perpetual contracts, a trader needs to be aware of several mechanics of the market. The key components a trader needs to be aware of are:
Mark Price: Perpetual Contracts are marked according to the Fair Price Marking method. The Mark Price determines Unrealized PNL and liquidation prices.
Initial Margin ：These key margin levels determine how much leverage one can trade with and open a position.
Maintenance Margin ：It is required for remaining the positions and avoiding auto-liquidation.
Funding：Periodic payments exchanged between the buyer and seller every 8 hours. If the rate is positive, then longs will pay and shorts will receive the rate, and vice versa if the rate is negative.
You will only pay or receive funding if you hold a position at the Funding Timestamp.
Funding Timestamps: 04:00 UTC, 12:00 UTC and 20:00 UTC.
Traders can observe the current funding rate for a contract on the indicator column of “funding rate”.
Funding is the core operating mechanism of Perpetual Contracts. The funding will be charged at UTC4 00(12:00 Singapore time), utc12:00 (20:00 Singapore time) and utc20:00 (04:00 Singapore time).
Funding is calculated as:
Funding Amount= Value of Positions × Funding Rate
Your position value is irrespective of leverage. For example, if you hold 100 BTCUSDT contracts, funding is charged/received on the notional value of those contracts, and is not based on how much margin you have assigned to the position.
The Funding Rate is comprised of two main parts: the Interest Rate and the Premium / Discount. This rate aims to keep the traded price of the perpetual contract in line with the underlying reference price. In this way, the contract mimics how margin-trading markets work as buyers and sellers of the contract exchange interest payments periodically.
The interest rate depends on the borrowing rate of the base currency and the accounting currency。
Interest Rate (I) = (Interest Quote Index - Interest Base Index) / Funding Interval
The perpetual contract may trade at a significant premium or discount to the Mark Price. In those situations, a Premium Index will be used to raise or lower the next Funding Rate to levels consistent with where the contract is trading. Each contract’s Premium Index is available on the specific instrument’s Contract Specifications page and is calculated as follows:
Premium Index(P)=Max(0,Impact Bid Price−Mark Price)−Max(0,Mark Price−Impact Ask Price)/Spot Price+ reasonable basis of Mark price
After determining the premium index, we set a buffer limit of 0.05% for the funding premium rate, so:
Funding Rate (F) = Premium Index (P) + clamp(0.01% - Premium Index (P), 0.05%, -0.05%)
When I-P is in the interval, capital rate F=I. In this case, we call it "F value", which means the funding rate is in the most stable range.
MXC imposes caps on the Funding Rate to ensure the maximum leverage can still be utilized. To do this, two caps are imposed:
The absolute Funding Rate is capped at 75% of the Initial Margin - Maintenance Margin. If the Initial Margin is 1% and the Maintenance Margin is 0.5%, the maximum Funding Rate will be 75% * (1% - 0.5%)= 0.375%.
The Funding Rate may not change by more than 75% of the Maintenance Margin between Funding Intervals.
|F1-F2|<= Maintenance Margin * 75%，F1、F2 are continuous Funding Rates.
MXC does not charge any fees on funding; it is exchanged directly peer-to-peer.
Fee of MXC is as follow，
Maker fee | Taker fee |
-0.025% | 0.075% |
Note: the contract fee will be charged first and returned later. The settlement will be made at 20:00 UTC each day and the corresponding trading fee will be returned.
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Carefully read the trading page of perpetual contract and understand the information of each section, including: contract information, pending orders, settlement history， trading data, position record, depth chart, etc.
At the same time, the bottom left of the page of contract information shows the relevant information of the contract, listed your common trading problems and the index information, easy to check at any time!
Margin
3. order management，put an order on order sector
Leverage
MXC provide difference times for leverage that support 100 times leverage for Cross Mode and 1-100 leverage for Fixed Mode。
Cross Margin Mode
For Cross Margin Mode, the Position Margin required varies with the price movements. For avoiding liquidations, all available balances in an account will be used as margin. Any realized profits could help increase margin for a losing position. Note that all positions are initially set to "cross margin mode" by default.
Fixed Margin Mode
In this mode，the Position Margin remains the same even the price fluctuates and the maximum loss is limited to the initial margin. Your available balances will not be used to increase the margin for the position that need to be liquidated. You can limit losses by isolating the margin used in a position when the short-term speculative trading strategy fails. You can choose the appropriate leverage for Fixed Margin Mode, The higher the leverage, the less margin will be used for the position.
Order Management
You can find all your orders for Perpetual Swap trading under "Trade Orders". All orders can be canceled until they are matched.
"Margin" only includes the amount required for the unfilled orders, while "Fee" only includes the fee required for the filled orders.
Limit Order
Limit order is an order that limits the maximum buying price of the buyer, and the minimum selling price of the seller. After your order is placed, system will post it on the order book, and match it with the orders available - at the price you specified or better. If the order price is far from the current market price, this trade might fail.
Market Order
A market order is an order to quickly buy or sell at the best available current price. Unlike limit orders, where orders are placed on the order book, market orders are executed instantly at the current market price. Please pay attention to the orderbook for avoiding market loss if you choose this mode.
Trigger Order
Trigger order is a pre-set order that will only be triggered under specific conditions. Once the latest traded price has reached the "trigger", the pre-set order will be executed. By using trigger order, trader can take profits and stop losses for open positions without much efforts. Also, you could open a position by setting a trigger price for reducing the trading cost.
Open Long
A trader could buy to open long position if the judgement is that the value of currency will rise in the future. The trade would profit by close long if the price rises. The model "buy now, sell later" is similar to spot trading.
Open Short
A trader could sell to open short position if the judgement is that the value of currency will fall in the future. The trade would profit by close short if the price fall. The model is "sell now and buy later" .
Trade Information
It is important knowledge of Profits and Losses/forced Liquidation.
Fair Price Marking
MXC employs a unique system called Fair Price Marking to avoid unnecessary liquidations in its highly leveraged products. Without this system, unnecessary liquidations may occur if the market is being manipulated, is illiquid, or the Mark Price swings unnecessarily relative to its Index Price. The system is able to achieve this by setting the Mark Price of the contract to the Fair Price instead of the Last Price.
Also note that Fair Price Marking only affects the Liquidation Price and Unrealized PNL, it does not affect Realized PNL.
Note: This means that you may see a positive or negative Unrealized PNL immediately after an order executes. This happens when the Fair Price is slightly different from the Last Price. This is normal and does not mean you have lost money, but be sure to keep an eye on your Liquidation Price to avoid a premature liquidation.
Liquidation Price
Liquidation will occur when the reasonable price reached the liquidation price，please keep an eye on liquidation risk and increase your margin or close your position in time.
Margin & Leverage
Margin is required for holding position and allows traders use the function of Leverage。
The key components a traders needs to be aware of are：
Initial Margin: The lowest possible Margin Ratio for opening a position. Also it determine how much leverage one can trade with.
Maintenance Margin：The lowest possible Margin for maintaining the current positions. Full or Partial Liquidation will occur if Margin is lower than Maintenance Margin.
Contract cost ：The assets required for opening a position，including the initial margin and possible fees.
Actual leverage ratio: the leverage ratio for current position，including UPL.
To avoid unnecessary liquidations, the risk limits is set for all trading accounts. Users might bear some market risk if some traders’ contract fund is too large. For example, Auto-Deleveraging might occur if the position that with huge fund is liquidated. The risk limit escalation model will help avoid this situation by raising margin requirements for large positions.
The guideline of perpetual contracts could be checked on the introduction page of margin
UPL（Unrealized profits and losses）
Unrealized profits and losses (UPL) is calculated according to the reasonable price, that is, the estimated income when closing the position at the reasonable price. UPL does not mean the actual income after closing the position, the actual closing profit is related to the closing price. The calculation of UPL can also be modified in [set] to [latest price], that is, the estimated profits based on the lasted mark price.
RPL（Realized profits and losses）
Realized profits and losses（RPL） mainly includes realized funding fee and realized profits and losses for closed part of position. The incurred funding expense will be increased or decreased as a part of the margin.
Example：
What are the advantages of using perpetual contracts for investment?
Assume that A and B trade BTC at the same time, A trade MXC perpetual contracts, and B directly buys BTC on spot market(equivalent 1 leverage). The price of BTC is 7000USDT, the value of position is 1BTC, and the value of single contract of BTCUSDT is 0.0001btc.
Case of Open long
If BTC rises to 7500USDT，the profits of A and B are as follow：
Segment | A-perpetual swap | B-spot trading |
Initial Price | 7000 USDT | 7000 USDT |
Value of position | 10000contracts（about 1BTC） | 1BTC |
Leverage ratio | 100 | 1 |
Margin | 70 USDT | 7000 USDT |
Profit | 500 USDT | 500 USDT |
Profit ratio | 714.28% | 7.14% |
Case of Open short，
If BTC rises to 7500USDT，the profits of A and B are as follow：
Segment | A-perpetual swap | B-spot trading |
Initial Price | 7000 USDT | 7000 USDT |
Value of position | 10000contracts（about 1BTC） | 1BTC |
Leverage ratio | 100 | 1 |
Margin | 70 USDT | 7000 USDT |
Profit | 500 USDT | 500 USDT |
Profit ratio | 714.28% | 7.14% |
The above cases show that A get the same profit and only used 1% of the margin with 100 times of leverage.
If you need to know more about the data, you can use the calculator in the upper right corner of trading page.
Margin is required for holding position and allows traders use the function of Leverage。
The key components a traders needs to be aware of are：
Initial Margin: The lowest possible Margin Ratio for opening a position. Also it determine how much leverage one can trade with。
Maintenance Margin：The lowest possible Margin for maintaining the current positions. Full or Partial Liquidation will occur if Margin is lower than Maintenance Margin
Contract cost ：The assets required for opening a position，including the initial margin and possible fees.
Actual leverage ratio: the leverage ratio for current position，including UPL.
MXC imposes risk limits on all trading accounts to minimize the occurrence of large liquidations on margined contracts.
As users amass larger positions, they pose a risk to others on the exchange who may experience a deleveraging event if the position cannot be fully liquidated. The Step model helps avoid this by increasing margin requirements for large positions.
Each instrument has a Base Risk Limit and Step. These numbers combined with the base Maintenance and Initial Margin requirements are used to calculate your full margin requirement at each position size.
As the position size increases, the maintenance and initial margin requirements will increase. Users must authorize a higher or lower risk limit on the Positions panel. Margin requirements will automatically increase and decrease as your risk limit changes.
Contract | Base Risk Limit | Step Risk Limit |
BTCUSDT | 200,000 USDT | 100,000 USDT |
ETHUSDT | 100,000 USDT | 50,000 USDT |
The Risk Limits level of Current position:
Risk Limit level= （Position Value +Order Value -Base Risk Limit）/Step+1
Note：The Risk Limit Level is in integer.
The Margin requirement is as follow；
Initial Margin：IMR= Risk Limit Level*0.01=[(Position Value+ Order Value -Base Risk Limit)/Step +1] *0.01
Maintenance Margin：MMR= Risk Limit Level*0.01=[(Position Value+ Order Value - Base Risk Limit)/Step +1] *0.005
MXC employs a unique system called Fair Price Marking to avoid unnecessary liquidations in its highly leveraged products. Without this system, unnecessary liquidations may occur if the market is being manipulated, is illiquid, or the Mark Price swings unnecessarily relative to its Index Price. The system is able to achieve this by setting the Mark Price of the contract to the Fair Price instead of the Last Price.
The Fair Price for a Perpetual Contract is calculated using only the Funding Basis rate. All Perpetual Contracts are subject to Fair Price Marking.
Also note that Fair Price Marking only affects the Liquidation Price and Unrealized PNL, it does not affect Realized PNL.
Note: This means that you may see a positive or negative Unrealized PNL immediately after an order executes. This happens when the Fair Price is slightly different from the Last Price. This is normal and does not mean you have lost money, but be sure to keep an eye on your Liquidation Price to avoid a premature liquidation.
Calculation of Fair Price for Perpetual Contracts
The Fair Price for a Perpetual Contract is calculated using only the Funding Basis rate:
Funding Basis = Funding Rate * (Time Until Funding / Funding Interval)
Fair Price = Index Price * (1 + Funding Basis)
1、Liquidation Process
MXC employs Fair Price Marking to avoid unnecessary liquidations that caused by illiquid markets or manipulation.
The calculated way for liquidation:
Fixed-margin mode：
Long Position Lp=Hp*Vol*S - (IM-MM)/[(1-R)*VOL*S]
Shot Position Lp=Hp*Vol*S +(IM-MM)/[(1+R)*VOL*S]
Cross-margin mode：
Long Position Lp=Hp*Vol*S - (Margin Available +IM-MM)/[(1-R)*VOL*S]
Short Position Lp=Hp*Vol*S +(Margin Availabe +IM-MM)/[(1+R)*VOL*S]
Lp：Liquidation price ；Hp：Average Position Price
；Vol：volume （token/contract）；S：The value of each contract；IM：initial margin ；MM：maintenance margin R：trading fee ratio
Risk Limits are also imposed that require higher margin levels for larger position sizes. This gives the MXC liquidation system more usable margin to effectively close large positions that would otherwise be difficult to safely close. If it is safe to do, larger positions are incrementally liquidated.
If a liquidation is triggered, MXC will cancel any open orders on the current contract in an attempt to free up margin and maintain the position. Orders on other contracts will still remain open.
MXC employs a partial liquidation process involving automatic reduction of maintenance margin in an attempt to avoid a full liquidation of a trader’s position.
MXC cancels any open orders in the contract.
If this does not satisfy the maintenance margin requirement then the position will be liquidated by the liquidation engine at the bankruptcy price.
The liquidation system attempts to bring a user down to a lower Risk Limit, and thus lower margin requirements by:
1，Attempting to bring a user down to a Risk Limit associated with their open orders and current position.
2，Cancelling any open orders and then attempting to bring a user down to a Risk Limit associated with their current position.
3，Submitting a FillOrKill order of the difference between the current Risk Limit position size and the position size to satisfy the margin requirement to avoid liquidation.
If the position is still in liquidation then the entire position is taken over by the liquidation engine and a limit order to close the position is placed at the bankruptcy price.
When a trader’s position is liquidated, the position is taken over by the MXC liquidation engine. If the liquidation cannot be filled by the time the mark price reaches the bankruptcy price, the ADL（Auto-Deleveraging） system automatically deleverages opposing traders’ positions by profit and leverage priority.
Auto-Deleveraging Process:
When the liquidation was conducted with the bankruptcy price, the ADL（Auto-Deleveraging）will automatically occur due to the lack of insurance fund.
The counterparty calculates the PnL ranking of the effective leverage (based on the Profit ratio and Effective Leverage). Deleveraging priority is calculated by profit and leverage. More profitable and higher leveraged traders are deleveraged first.
Note: You will notice the ADL “lights” that show your position in the queue. Pay attention to the market risk of Contract trading, choose the appropriate leverage and position to trade within your acceptable range.
The Calculation of profits/losses
Ranking = PNL Percentage * Effective Leverage (if PNL percentage > 0)
= PNL Percentage / Effective Leverage (if PNL percentage < 0)
where
Effective Leverage = abs(Mark Value) / (Mark Value - Bankrupt Value)
PNL percentage = (Mark Value - Avg Entry Value) / abs(Avg Entry Value)
Mark Value = Position Value at Mark Price
Bankrupt Value = Position Value at Bankruptcy Price
Avg Entry Value = Position Value at Average Entry Price