1. What is a Bitcoin contract?
Bitcoin futures, also known as Bitcoin contracts, are very different from currency-to-crypto transactions, which must actually hold the digital currency.
Bitcoin contracts enable you to predict Bitcoin price movements and hedge risks. This type of trading means that you are investing in price trends rather than the asset itself.
In the spot market, traders can only profit from buying low and selling high on a specific target; in the futures (contract) market, traders can profit from two-way market fluctuations by going long or short on a certain target.
Go long: buy a contract with the expectation that the contract price will rise
Short Selling: Selling a contract in the hope that the contract price will fall
2. Types of Bitcoin Contracts
There are currently two types of Bitcoin contracts, one is a delivery contract and the other is a perpetual contract. The former has an agreed delivery time, while the latter does not agree on a delivery time.
1. What is a delivery contract?
A delivery contract means that both parties to a futures contract agree to deliver the contract at a specified time, that is, the delivery day, based on the futures price. The contract price is all formed by market mechanisms, and the latest transaction price is used to calculate profit and loss without using the index.
-Type of delivery contract
Delivery contracts are generally divided into four types according to different delivery times: current week, next week, current quarter, and sub-quarter.
The current week's contract refers to the contract that is delivered on the Friday closest to the trading day;
The next-week contract refers to the contract that is delivered on the second Friday closest to the trading day;
The current quarter contract refers to a contract whose delivery date is the last Friday of the month closest to the current one in March, June, September, or December, and does not coincide with the delivery date of the current week/second week contract;
Second-quarter contracts refer to contracts whose delivery date is the last Friday of the second closest month in March, June, September, or December, and does not coincide with the delivery date of the current week/second week/current quarter contract.
Special circumstances: Under normal circumstances, after settlement and delivery every Friday, a new next-week contract will be generated. However, after settlement on the penultimate Friday of the quarter month, there are only 2 weeks left for the current quarter contract to expire, and it actually becomes a sub-week contract. If a new sub-week contract is generated at this time, these two contracts will have Same expiration date. Therefore, after settlement and delivery on the penultimate Friday of the quarter months March, June, September, and December, the system will not generate the second-week contract, but will generate a new second-quarter contract, and the original second-quarter contract will become the current day's contract. Quarterly contract, the original current quarter contract will become the next week contract.
2. What is a perpetual contract?
The perpetual contract is an innovative financial derivative that is developed on the basis of the delivery contract, but it is still very different from the former. The perpetual contract is similar to a guaranteed asset market, its price is close to the price of the underlying reference index, and there is no concept of expiration and delivery date. As long as the contract does not liquidate, you can always hold it.
-Funding fee mechanism
The funding fee mechanism is the most important feature of the perpetual contract, which allows the perpetual contract to always anchor the spot price. Perpetual contracts have no expiration and delivery date, but fund charges will be settled every 8 hours.
If the funding rate is a positive number, the long side will pay the funding fee to the short side;
If the funding rate is negative, the short side has to pay the funding fee to the long side.
Calculation formula: Funding fee = Net position value * Funding rate.
Forward contract and forward contract
Forward contracts are generally priced in USDT, and USDT is used as a collateral asset to calculate profits and losses.
Inverse contracts are also called currency-based contracts. Taking BTC as an example, they are priced in USDT, but BTC is used to collect collateral assets and calculate profits and losses.
Ladder leveling function
Ladder liquidation, that is, Partial Liquidation. When a user's position is triggered to liquidate, the system will first determine the level corresponding to its net position, and partially liquidate its position to the next level by reducing the position. If it is calculated to the 1st When the net position goes online and the margin ratio is still less than or equal to 0, all the user's positions will be liquidated.