A currency-based perpetuity contract (Coin-Margined Perpetual Contract) is a derivative contract in which users trade in the underlying cryptocurrencies (such as Bitcoin, Ethereum, etc.) as a margin and settlement currency. Unlike U-standard contracts (USDT settlement), currency-based perpetuity contracts directly use digital currency as the base unit for trading and profit and loss settlement. Therefore, the biggest feature of this contract is that settled in cryptocurrencies and has no maturity date, so investors can open or close positions at any time based on market volatility.
Main features of currency-based perpetuity contracts:
- Settlement in cryptocurrency: Currency standard contracts use the underlying cryptocurrency (such as BTC, ETH) as the settlement unit, and all profits, losses and margin are calculated and settled in digital currency.
- Capital expense mechanism: Since a perpetual contract has no delivery date, its price will be consistent with the spot market price. In order to maintain the price consistency, the currency standard perpetual contract adopts the capital fee (Funding Rate) mechanism, usually every 8 hours. Capital charges determine the flow between long and short positions to keep contract and spot prices close.
- No due date: A significant feature of currency-based perpetuity contracts is that there is no maturity date and investors can hold their position at any time until they choose to close their position.
- Leveraged trading: Currency-based perpetuity contracts typically provide leveraged trading, allowing investors to control greater market value with less capital, thus amplifying profits and risk.
Advantages of currency-based perpetuity contracts:
- Suitable for cryptocurrency investors:
- For investors who already hold a large number of underlying cryptocurrencies (such as BTC, ETH, etc.), currency-based perpetual contracts are an ideal option. Investors can use these digital currencies directly as margin and settlement units, without having to convert them into stablecoins (such as USDT), thus saving conversion costs.
- Suitable for miners and long-term holders:
- Miners or long-term investors are more inclined to choose currency-based contracts because they can trade their mining or long-term digital assets as margin, while profits and losses are also settled as digital assets to facilitate long-term capital accumulation.
- Closely connected with the spot market prices:
- Since currency-based perpetual contracts are settled in cryptocurrencies, contract prices usually fluctuate closely with the spot market price, making it easier to carry out, and price fluctuations and market trends are more intuitive.
- Reduce the exchange costs:
- By trading directly with underlying cryptocurrencies, investors do not need to convert digital currencies into stablecoins (such as USDT), avoiding additional exchange fees and improving transaction efficiency.
- lever effect:
- Currency-based perpetuities allow investors to use leverage to trade and control more market value with less money, thereby increasing potential returns while also taking greater risk.
Risks of currency-based perpetuities:
- Large volatility:
- Since the profits and losses of currency-based perpetuity contracts are settled based on cryptocurrencies, the price fluctuations in the market will directly affect the profit and loss of investors. Risk can be amplified, especially when markets are volatile.
- Impact of capital expenses:
- The currency-based perpetual contract settles the capital expenses every 8 hours, and the fluctuation of the capital expenses may have an impact on the profits of investors. If the market is more bullish, the capital expense may be higher, and the bears will need to pay more capital expense, and vice versa.
Example: How to trade in a currency-standard perpetual contract?
Assuming youre a bitcoin holder with 2 BTC, now you decide to earn potential market gains through currency-based perpetual contracts.
- Select the currency standard contract:
- You choose to open a BTC / USDT currency standard perpetual contract on the JuCoin platform.
- opening transaction:
- You can choose to go long (buy) or short (sell) the BTC contract. For example, if you judge that the price of Bitcoin will go up, you decide to go long with BTC. You use 1 BTC as a margin.
- Use leverage to scale up the trading size:
- Assuming the platform provides 10 times leverage, you can control the 10 BTC trading position with a 1 BTC margin. In this way, if the market price rises by 1%, you will make 10 times the profit, or 10% (10 BTC * 1% increase), corresponding to 1 BTC earnings.
- Settlement of capital and expenses:
- After 8 hours, the platform settles the fund fee, assuming that you have to pay some funds fee (for example, 0.01 BTC), which will be deducted from your account balance.
- lose positions and settle profit and losses:
- When you think the market reaches its target price, you choose to close your position. If the price of bitcoin rises, you will make a profit (settled by BTC), and if it falls, you will face a loss.
sum up
The currency-based perpetual contract takes the underlying cryptocurrency (such as BTC, ETH, etc.) as the settlement unit. Unlike the U-based contract, it has no fixed maturity date and can be held for a long time. Through leveraged trading, investors can make more profits in the market fluctuations, but they also need to pay attention to the large volatility of currency standard contracts and the impact of capital expenses. It is particularly suitable for miners and long-term investors who already hold large amounts of cryptocurrencies, making it easier to trade and accumulate assets.