Hydax Exchange Preparing For Its Perpetual Contract Launch
Introduction
As the interest and understanding of financial derivatives in the currency circle have gradually deepened, Hydax has also responded to our user’s needs. After a series of iterations and internal repeated tests, we will soon launch a perpetual contract product and formally join the contract trading exchange group. We believe that financial derivatives trading capabilities will be one of the must-have features for digital asset exchanges. Hydax will also continue to work hard to form its contract trading communities.
What is a digital asset contract trading? What are the types of contracts? Contract trading is virtual contract products that are settled in BTC or USDT currency. The types of contracts include term contracts (weekly contracts, sub week contracts, quarterly contracts) and perpetual contracts. The perpetual contract will not be automatically due for delivery, and the position can be opened and closed at any time, and the income will be settled in real-time. A perpetual contract has more advantages than a term contract. In Hydax’s perpetual contract products, each contract represents a $1 BTC, and investors can earn by buying long or selling shorts.
Simply put, the usual profit-making methods in the market is to buy low and sell high, but the emergence of contract trading gives investors more choices, whether the price of the digital asset rises or falls.
Hydax’s Perpetual Contract Product Features
1. Definition of perpetual contract:
1) Due date: The perpetual contract has no expiration date and settlement date, which is a contract product that never expires;
2) Capital cost: The perpetual contract is similar to the spot margin market, so the contract price is close to the price of the underlying index; because it has no due date, the perpetual contract needs to be anchored using the “funding fee mechanism”.
3) Settlement every 8 hours: The buyer and the seller pay the fee every 8 hours (04:00, 12:00 and 20:00 Singapore time). If the rate is positive, the long positions will pay the rate to the short position. The short position receives the proceeds from the fund rate; there is no need to pay the rate fee if there is no position held at the time of settlement.
2. Hydax’s sustainability contract has four major advantages:
1) Strictly calculate the index of futures
2) The range of leverage is between 2X-100X times, which satisfies the needs of different traders. (High leverage increased the potential benefits also increased the risk. Investors should carefully choose the right leverage.)
3) High performance, high liquidity
4) Auto-deleverage mechanism and risk-position limit mechanism to reduce risk
Perpetual Contract Trading Model
1. Contract trading generally has two investment models: one is called speculative arbitrage and the other is hedging.
1) Speculative Arbitrage: Simply put, use leverage to expand the size of funds with contracts, to achieve greater profitability. Of course, in other words, it will also accelerate losses by adding leverage.
2) Hedging: Also known as hedging trade, it refers to the use of virtual contracts to hedge the price fluctuations of commodity prices, thereby avoiding the risks caused by fluctuations in commodity prices during a certain period. Hedging is divided into the long hedge and short hedge, which apply to customers who wish to buy the product in the future and those who wish to sell the product in the future.
For example: Suppose I have 10 BTC in my hand. The current BTC spot price is $10,000 USDT/BTC, which is equivalent to a total price of $100,000 USDT. To avoid short-term price fluctuations, since it affects the market value of BTC in my hands. I can choose to short a futures contract corresponding to 10 BTC at a certain price in the contract market, then the following two situations will occur:
1) The spot price of BTC has fallen, I earned on the futures contract.
2) The spot price of BTC has risen. I lose on the futures contract.
In the end, regardless of whether the price of BTC rises or falls, it is maintained at $100,000 USDT in fiat currency, and finally achieves the purpose of asset value preservation.
2. The launch of the perpetual contract can meet the needs of sophisticated investors. Because it does not require regular delivery, investors who are particularly suitable for long-term investment and hedging do not have to worry about swapping contracts and can save investors some transaction costs, including handling fees or contract spreads.
3. Traditional futures markets are about 10X in leverage, while perpetual contracts can open with higher leverage, and Hydax’s perpetual contract allows up to 100 X leverage, which means there is a chance to get the same return at a lower cost.
4. Since the perpetual contract has no delivery date limit, it can maximize the risk of hedging and can be delivered at any time. Under the fluctuation of the price of 50–60% of the digital asset market, risk control can be carried out more effectively.
5. Besides, Hydax’s perpetual contract also has an auto-deleveraging mechanism which gives investors more flexibility.
1) What is the auto-deleveraging mechanism? When a digital asset has a certain trend, many investors will place orders in the same direction, which is what people call the “unilateral market.” Once there is a unilateral market, there will be more capital inflows, which will further deepen the premium or discount, resulting in a weak “capital” amount of funds, resulting in a series of blow-ups.
2) When a user is forced to close a position, the remaining positions of the user are taken over by the system. If the strong position fails to close the market at the blow-up price and the insurance fund is insufficient to cover the loss, the system will trigger the auto-deleveraging mechanism. The auto-deleveraging system will deleverage the user’s positions who hold in the opposite direction. The order of deleveraging will be determined according to the leverage and profitability. This mechanism is to spread the risk by closing the position, so the realized profit can be transferred at any time.
Conclusion
Hydax will continue to roll out more related tutorials and materials about perpetual contract trading and set up a contract trading community to serve our users.
Hydax’s perpetual contract products have a large number of rules and security mechanisms to protect the user’s trading experience and asset security, but we still want to remind everyone that the perpetual contract is essentially a leveraged transaction, which is high risk and high return product. So for investors, the first thing to consider when participating in a transaction is to learn how to control your risk, not profit. How you all can realize the preservation and appreciation of your assets through reasonable position control and scientific fund management.
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