What is Bitcoin Derivatives / Perpetual Contract?

a month ago

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*This post has been written by Hedgehog, a MCS influencer and a Bitcoin margin trader.



Greetings from MCS, the derivatives trading platform where traders ALWAYS come first.

If you are a trader who mainly deals spot trading in cryptocurrency (Bitcoin, Ethereum, etc.), and a trader who has been doing cryptocurrency trading for a long time, the word "perpetual contract" might be new to you. A Perpetual Contract, one of the cryptocurrency derivatives products, is a combination of the advantages of cryptocurrency spot trading and futures trading in a traditional financial market. In this post, let's take a closer look at the perpetual contract of the most famous cryptocurrency in the world, Bitcoin.

Bitcoin perpetual contract, a Bitcoin derivative, has mainly four characteristics. There are no expiration or settlement dates, and they often use a dual pricing model. In addition, Bitcoin perpetual contract can be traded using leverage. MCS offers up to 100x leverage.  Bitcoin perpetual contact also employs "Auto-Deleveraging" (ADL) as a loss minimization mechanism.

"Expiration / Settlement Date" ... "Dual Price Model" ... "Loss Minimization Mechanism"..⁉️

You might find perpetual contract difficult because you are not accustomed to these words; however, it is NOT‼️

🎯 First, Bitcoin perpetual contract has "no expiration or settlement date".

There is no expiration or settlement date for Bitcoin perpetual contract. Unlike Bitcoin spot trading that needs immediate settlement and other Bitcoin futures products, Bitcoin perpetual contract traders do not need to consider rollover cost, which is a transaction fee for a contract extension, and can sell the contract whenever. In addition, the price of MCS Bitcoin perpetual contract converges to the spot market price of Bitcoin (or market average price) through the funding rate, which takes place in every 8 hours. Thus, even though there is no expiration date, traders check this funding fee to make sure their positions are safe.

🎯 Second, Bitcoin Perpetual Contract uses "Mark Price System (Dual Price Model)".

The MCS cryptocurrency derivatives trading platform uses a mechanism called 'Funding' to link the price of Bitcoin perpetual contract to the price of the Bitcoin spot. In addition, MCS adopted a dual price model that utilizes the mark price (market average) to protect traders from unreasonable forced liquidation caused by market manipulation and to create a fair trading environment. The above-mentioned market manipulation means that it causes abnormal price fluctuations and unnecessary forced liquidation of positions, resulting in an unfair trading environment. The mark price of MCS is the real-time price average of the global Bitcoin exchanges with BTC/USDT markets.

🎯 Third, Bitcoin Perpetual Contract offers up to 100x leverage

Traders on the MCS Bitcoin Derivatives Trading Platform can trade Bitcoin perpetual contract using up to 100 times the leverage on MCS. Compared to the 3x to 20x leverage offered in spot margin trading or futures trading on other existing exchanges, MCS offers a much wider range of leverage. As a result, traders can manage their portfolio in a variety of ways, and can easily adjust the leverage and margins of open positions at any time to effectively manage risk.

🎯 Fourth, MCS Bitcoin Perpetual Contract employs "Auto-Delveraging" mechanism.

In the case of Bitcoin derivatives trading, if a trader is forced to liquidate, contract loss may occur due to the inability to settle the position at a price that is better than its bankruptcy price. In this case, the Insurance Fund covers the loss incurred. If the contract loss is not covered by the Insurance Fund, auto-deleveraging takes place. Auto-Deleveraging (ADL) is a mechanism by which a trader with high profits and leverage compensates for the contract loss. The positions of traders that are subject to ADL are automatically liquidated by matching the bankruptcy price of the position forcibly liquidated. Let me dig a bit deeper. There are two types of loss minimization mechanism; the socialized loss and the auto-deleveraging which is used by MCS. In the case of the socialized loss, all the traders on the platform compensate equally for a contract loss. Auto-deleveraging adopted by MCS affects only the traders who have profiting positions with high leverage. This protects other traders who use low risk and low leverage from being harmed by a single risky trader.

💡 "If you know your enemies and know yourself, you will not be imperiled in a hundred battles."

I hope this post was helpful to you in understanding Bitcoin perpetual contract, and I really wish that you realize your financial freedom through Bitcoin perpetual contract!!

I am a Bitcoin margin trader, Hedgehog. Thank you for reading this post.


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Published a month ago