![]() The initial margin is what backs your leveraged position, acting as collateral. So your initial margin would be 10% of the total order. For example, you can buy 1,000 BNB with an initial margin of 100 BNB (at 10x leverage). Initial margin is the minimum value you must pay to open a leveraged position. Still, the biggest difference between the traditional futures and perpetual contracts is the ‘settlement date’ of the former. However, during extreme market conditions, the mark price may deviate from the spot market price. Thus, unlike conventional futures, perpetual contracts are often traded at a price that is equal or very similar to spot markets. The Index Price consists of the average price of an asset, according to major spot markets and their relative trading volume. Other than that, the trading of perpetual contracts is based on an underlying Index Price. So one can hold a position for as long as they like. Leverage: traders can enter positions that are larger than their account balance.Ī perpetual contract is a special type of futures contract, but unlike the traditional form of futures, it doesn’t have an expiry date. Short exposure: traders can bet against an asset’s performance even if they don’t have it. Hedging and risk management: this was the main reason why futures were invented. The longer the time gap, the higher the carrying costs, the larger the potential future price uncertainty, and the larger the potential price gap between the spot and futures market. However, many futures markets now have a cash settlement, meaning that only the equivalent cash value is settled (there is no physical exchange of goods).Īdditionally, the price for gold or wheat in a futures market may be different depending on how far is the contract settlement date. As a consequence, gold or wheat has to be stored and transported, which creates additional costs (known as carrying costs). In some traditional futures markets, these contracts are marked for delivery, meaning that there is a physical delivery of the commodity. Instead, they are trading a contract representation of those, and the actual trading of assets (or cash) will happen in the future - when the contract is exercised.Īs a simple example, consider the case of a futures contract of a physical commodity, like wheat, or gold. Also, a futures market doesn’t allow users to directly purchase or sell the commodity or digital asset. Instead, two counterparties will trade a contract, that defines the settlement at a future date. Unlike a traditional spot market, in a futures market, the trades are not ‘settled’ instantly. A futures contract is an agreement to buy or sell a commodity, currency, or another instrument at a predetermined price at a specified time in the future.
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