PERPS FAQ's
What Are Perpetuals?
Perpetuals, or perpetual contracts, are types of financial instruments used in cryptocurrency trading that allow investors to speculate on the future price of an asset without an expiry date. Unlike traditional futures contracts, perpetuals do not have a settlement date, so positions can be held indefinitely as long as the trader can maintain the required margin.
Long or Short?
When traders open a position, they can choose to go long (betting that the price of the underlying asset will go up) or go short (betting that the price of the underlying asset will go down), with the possibility of applying leverage to amplify their trading position and potential profits or losses.
What's leverage?
Each contract has a set percentage that the price of the underlying asset can move before reaching the liquidation point. This percentage is influenced by the leverage of the contract.
A leverage of 1x means the price of the underlying asset needs to move ±100% before a liquidation can take place.
A leverage of 50x means the price of the underlying assets needs to move just ±2% for a liquidation to take place therefore making it more volatile and quicker win or loss.
What's the collateral asset?
The collateral assets must be MRC-20 tokens, initially you can use GLD as collateral, but we are working on bringing other assets too. This means that in order to create a perpetual contract, your account must hold the amount of collateral you specify in the contract.
This amount will be deducted from your balance and stored in the contract until you either exit or your contract gets liquidated in your favour.
How liquidations work?
Both parties in the contract, the one taking a long position and the one taking a short position, contribute an equal amount of MRC-20 tokens as collateral.
If the underlying asset's price changes by the defined percentage, the contract is marked for liquidation. This means the total value of the price change has equaled the amount of collateral locked in the contract by each user.
Liquidation is designed to prevent scenarios where losses exceed the collateral. It's a protective measure that ensures the integrity of the platform and the fairness of trades.
Can I become a liquidator?
Yes, other participants on the platform have the opportunity to liquidate undercollateralized contracts. By doing so, they receive a reward of 25% of the contract's collateral minus 1% fee in GLD which is immediately burnt, therefore enhancing GLD's deflationary nature.
How do I become a liquidator?
Simply monitor the 'Liquidation Progress' percentage of any ongoing contract. When this reaches 100% you can send a liquidation transaction.
The first liquidator to make this transaction will be instantly rewarded with 25% of the contract's collateral minus 1% fee in GLD. The other 75% (minus the 1% fee) goes to the 'winning' party in the contract.
How do I make profit?
Profit in perpetual contracts arises from the difference in price movement of the underlying asset from the point of contract initiation to closure. As a maker (contract creator) or a taker (contract matcher), you can profit by going 'Long/Buy' or 'Short/Sell'
If you expect the price of the underlying asset to increase, you can go long. Your profit is realized if the asset's price goes up, as your contract will be valued higher than at the start.
Conversely, if you anticipate a price drop, you can go short. You profit when the price decreases because you can buy back the asset or settle the contract at a lower value.
How much profit can I make?
You can make a maximum profit of 2x your collateral amount. For instance, if you create or match a contract with a collateral of 100 GLD, given that you exit at the right time your take-home amount will be 200 GLD
Alternativel if you don't exit fast enough and the contract gets liquidated by a 3rd party you maximum profit will be 1.75x (minus 1% burn fee) your collateral amount. Using the same example above, under a liquidation, your take-home amount would be 173.25 GLD.
How much can I lose?
Trading with leverage can be risky. It's essential to understand the market dynamics and have a clear risk management strategy before entering a perpetual contract. Your total loses could amount up to 100% of your collateral.
Can I cancel my contract
Yes, you may cancel your perpetual contract as long as it is not ongoing, meaning someone has already matched it and the underlying asset price has been locked
To cancel your ongoing contract, simply click on the 'exit' icon within the contract and follow the instructions.
Can I exit a contract?
Yes, you can exit an ongoing contract you are participating in at any time and taking any profit or loss along with it.
What are the risks?
Traders should be aware of the high-risk nature of high leverage trading. A small price movement can lead to liquidation, so it's crucial to monitor positions closely and understand the market conditions.
