In the process of exploring the market for delisted coins, contracts are an indispensable key tool that cannot be avoided. Below is a systematic overview of them.
Spot Leverage vs. Perpetual Contracts
Spot leverage involves actual borrowing of funds or cryptocurrencies, with interest being fixed and continuously accruing. The leverage ratio typically does not exceed 10 times. On the other hand, perpetual contracts do not involve real borrowing; they rely on funding rates to maintain a close relationship between contract prices and spot prices. The leverage for perpetual contracts can go up to 100 times, but this also means the risk of liquidation can arise more quickly.
Funding Rate Analysis
The funding rate is a fee interaction mechanism between longs and shorts, which ensures that the contract price is as close as possible to the spot price. When the contract price is at a premium (higher than the spot price), longs need to pay the funding rate to shorts; if the contract price is at a discount (lower than the spot price), then shorts pay the funding rate to longs. The funding rate is determined within each settlement period and has a certain lag, not reflecting market sentiment in real-time.
Settlement Mechanism Description
Taking Binance as an example, it defaults to settling the funding rate every 8 hours. In extreme market conditions, the settlement period may be shortened to 1 hour. Only those traders who still hold contract positions at the moment of settlement are required to pay or receive the corresponding funding rate.
Funding Rate Strategy Introduction
A common trading strategy is to hold both spot long positions and contract short positions simultaneously to create a hedge, earning profits through funding rates. This is also the underlying operational logic behind high-yield products like USDe.
Contract Position Interpretation
The contract open interest reflects the total number of long and short contracts in the market that have not yet been closed. When open interest (OI) rises and prices also rise, it indicates that long funds are actively entering the market; when open interest decreases and prices fall, it often means that longs are closing positions and exiting the market.
Margin and Liquidation Key Points
The larger the position size held by traders, the higher the required margin. Maintaining the margin seems to provide traders with a certain safety buffer, but once a forced liquidation is triggered, price slippage may likely consume all the margin. It is important to clarify that the main purpose of the forced liquidation mechanism is to protect the trading platform, not to safeguard the interests of the traders themselves.
In summary: The underlying logic of perpetual contracts is to 'anchor prices using funding rates and control risks through margin', but in actual trading operations, the core point is just one - never blindly hold onto losing positions.
