Introduction to perpetual contracts

The perpetual contract is a financial derivative product launched by MEME. To help you better understand it, we will introduce the characteristics of the perpetual contract and the main differences between the perpetual contract and spot trading and traditional contract trading in this article.

What is a perpetual contract?

A perpetual contract is a financial derivative. It has the following two characteristics：

1、The perpetual contract has no expiration date for delivery.

2、Perpetual contracts are traded at a price close to the corresponding spot price through a funding rate mechanism.

Types of perpetual contracts

MEME digital currency trading platform provides perpetual contract trading with up to 100 times leverage, with more perpetual contract trading on all products priced in USD.

The difference between spot trading and contract trading

1.Contracts differ from the spot market in that the two counterparties to the transaction do not settle immediately, but at a clearly agreed future date.

Important: Because the contract market calculates unrealized gains and losses differently, traders in the contract market do not buy or sell physical commodities directly, but trade contracts that represent commodities and are settled in the future.

2.A further difference between the perpetual contracts market and the spot market is that perpetual contracts do not have an expiration date for delivery.

Important Note: Contract prices are different from spot market prices due to the cost of holding positions. Like many contract markets, the platform uses a "funding rate" to ensure that the contract market price converges to the "spot price". While this system will facilitate long-term price convergence between the spot and contract underlying, there may still be relatively large price differences between contract and spot prices in the short term.

Differences between perpetual contracts and futures contracts

1.The main difference between perpetual contracts and futures contracts is that perpetual contracts do not have an expiration date or settlement date.

2.In addition, perpetual contracts carry the fact that there is no need to deliver the actual commodity, and mimic the behavior of the spot market in order to reduce the gap between the contract price and the spot price. This is a great improvement over traditional contracts (which would have a long/fixed price difference from the spot price).

Features of MEME perpetual contracts

1.Double set price mechanism: increase the difficulty of price manipulation

Market manipulation is the malicious manipulation of trading prices for personal gain. Such abnormal price fluctuations may lead to positions being closed out in bad faith, thus creating a very unfair trading environment. To reduce the likelihood of malicious market manipulation, MEME uses a dual set of price mechanisms to ensure a fair trading environment. Currently, most exchanges use the latest market price as the trigger point for forced liquidation. Instead of the latest market price on the platform, MEME uses a reasonable spot price as the trigger point to force a closeout. The spot price is derived in real time from the spot prices of the three major spot exchanges. Therefore, even MEME does not have the ability to influence the spot price.

2.Always anchored to the spot market price

Another feature of the MEME perpetual contract is that the trading price is always anchored to the spot market price without significant deviation. MEME ensures that the price of a perpetual contract is always anchored to the spot price by weighing a combination of long and short side trends every 8 hours and calculating a funding fee, which is paid by one of the long and short sides to the other. The funding fee is charged every 8 hours, at 8:00 am, 4:00 pm and 12:00 am daily.

3.Flexible leverage of up to 100x

Leveraged spot markets generally offer 3-5x leverage and higher borrowing costs. In the futures market, several major trading platforms only provide 5-20x leverage. However, MEME perpetual contracts offer up to 100x leverage, which traders can flexibly adjust after opening a position according to their trading needs. The platform provides a flexible gradient margin system while ensuring the best trading experience for traders.

4.Automatic position reduction mechanism ensures traders' interests

MEME uses a full position penetration mechanism to ensure traders' interests. This mechanism is used to determine who bears the loss of a position that cannot be closed at a price better than the breakeven price in the event of a forced close. Unlike social loss sharing, where all profitable traders share losses, MEME uses automatic position reduction to ensure that traders' interests are protected against large losses caused by a few risky speculators. The automatic position reduction system ranks client positions according to their percentage of profitability and effective leverage. That is, traders with high profitability and high leverage will be selected first.

MEME for perpetual contracts

Leverage: MEME offers different levels of leverage for different products, up to 100x leverage. Leverage is determined by the starting margin and maintenance position margin levels. They determine the minimum amount of capital a trader needs to open and maintain a position.

Leverage is not a fixed multiple, but a minimum margin requirement. You can see the minimum amount of starting margin and maintenance margin on the Risk Limits page.

Open position value: Average price of open position * number of open positions

Value of open position: Number of open positions * Markup price

Unrealized P&L: The profit or loss generated by the trader's current position in the contract, also known as floating profit or loss.

Realized P&L: The accumulated P&L of a trader's closed position before the contract is settled.

Profit: The realized gain on the position since it was opened + the unrealized gain since the last settlement.

Profit margin: = profit / margin required to open a position = profit / (number of open positions * average price of open positions / leverage).