Everything you need to know about Perpetual Contract on Huobi.
Perpetual contract trading has quickly become the best way of digital currency trading. If you are a trading enthusiast and understand the great opportunities that digital currencies bring, you may be familiar with perpetual contracts. If you don’t know about contract transactions but want to know more information, please read on.
This article will introduce everything related to perpetual contracts and some details related to Huobi.
What is a perpetual contract?
Before discussing perpetual contracts, we need to understand futures contracts.
A futures contract is a standardized agreement to buy or sell something at a predetermined price at a certain time in the future. The assets traded are usually commodities or financial instruments. When the contract expires, both parties can choose whether to perform the contract.
Perpetual options are also exhausting because they are agreements to buy and sell something in the future, but there is no settlement date and you can keep your position indefinitely.
In addition, prices are closely linked to related assets to balance the demand for assets from buyers and sellers. This helps manage volatility, and colleagues also allow investors to benefit from the promotion of futures trading.
Perpetual contracts have many advantages, such as the following:
- There is no need to frequently manage and re-establish trading positions, because your position will never expire like a fixed-term futures contract.
- It is possible to invest and obtain assets without trading, and this only requires opening a perpetual contract linked to the asset of interest.
- You can use 100 times leverage to create more income.
In summary, due to the link to related assets, perpetual contracts are usually traded at the same or similar prices in the spot market. However, under volatile market conditions, the spot market price may deviate from the set price. It needs to be emphasized again that the biggest difference between traditional contracts and perpetual contracts is the “settlement date.”
The difference between a perpetual and a contract
If you think Bitcoin will increase in price, then you have several options. One of the most commonly used methods is to choose a contract, however, futures contracts have expiry dates. For those traders who want to use financial derivatives but do not want to complicate the procedures, perpetual contracts are very suitable.
In addition to having no expiry date, a perpetual contract does not involve the participation of basic assets, and there is no need to hold or borrow funds to trade. Perpetual contracts are designed to be traded at prices close to the basic spot price. If the Funding ratio mechanism is used, the needs of buyers and sellers can be balanced, so that the swap price and basic assets will fall simultaneously.
Funding ratio and handling fee
The difference in Swap is related to the funding fees, which are basically used to balance the uncertain part of the market. The fee is determined according to the funding ratio, and the perpetual contract price is determined after the fixed spot asset price.
For example, if the perpetual contract exceeds the basic spot price for trading, then the funding ratio is a positive number. In other words, if you have been holding a long position, you need to pay a funding fee to the holder of the short position. On the contrary, if the funding ratio is negative, then the airdrop holders will have to pay fees to the long positions holders.
If there is no such mechanism, the trend line of the trader will conflict with the open position, and there is no way to get the fee through the perpetual swap position, and the swap can not be guaranteed to the assets that should be followed.
Contract characteristics
Huobi selects the market prices of more than 3 major exchanges as the index components to ensure that the spot index price accurately reflects the market price of each digital currency.
Automatic lightening mechanism (ADL)
Leverage is the function of trading after borrowing funds. In order to expand the profit in the transaction, traders usually borrow to increase funds. This is to maximize the expected return, which may be higher than the interest on the loan.
Huobi is a digital currency exchange that puts users first, providing the world’s lowest transaction fees, the highest level of security, a 24/7 customer service center, and most importantly, it also provides 100 times the trading leverage -These do not require any KYC. You can trade perpetual contracts of BTC, ETH, XRP, BCH, LTC, EOS and BNB on the platform.
On the other hand, automatic lightening is a function of Huobi to prevent user positions from being liquidated. If your position cannot be executed in the market due to insufficient insurance funds or insufficient order quantity, the automatic lightening mechanism (ADL) will work. ADL will liquidate the position with the opposite position. At this time, the system will implement it according to the leverage and profit and loss. The mechanism is to protect transactions in the overall market.
Risk ceiling
In order to prevent market manipulation, Huobi limits the buying and selling prices of users. The risk limit is used to reduce the user’s position risk. A wise investor needs to choose a risk limit from the available margins. In two cases, strict price-limiting measures will be triggered.
- When a long order is placed and a short order is closed, the highest bid quotation is triggered when the order price is lower than the order price.
- When a short order is placed and a long position is closed, the lowest Ask quotation is triggered when the price is higher than the closing price.
Huobi provides financial derivatives such as digital currency futures, options, and perpetual contracts. Regarding perpetual contracts, Huobi provides digital currency leverage and USDT-leverage, including BTC, ETH, LTC, etc. Traders can use 100 times leverage to trade perpetual contracts.
In order to provide users with a stable transaction to pay off, Huobi also provides a reference price. The reference price is used as the basis for calculating the basic assets used when the user has not realized profit or loss. This is to avoid unnecessary liquidation when the price fluctuates too much.
If you want to learn more about perpetual contracts and trade in your own way, please click here to create your own trading account.
Please check Huobi official website or contact the customer support with regard to the latest information and more accurate details.
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Please click "Introduction of Huobi", if you want to know the details and the company information of Huobi.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...