“Linear Contract” is also called USDT Contract, which is the digital asset derivatives Contracts denominated and settled by USDT. Users can make profits from the rising/falling price of digital assets by going long or selling short positions based on their own judgment.
Differences between Perpetual Contract and Futures Contract
- 1.Expiry date: each futures contract has a defined date for delivery and settlement. However, Perpetual contract doesn’t have an expiry date and traders can hold a position for as long as they like.
There is no delivery for USDT-settled perpetual contracts, therefore, users can hold a position as long as they want. The USDT-settled perpetual contracts are settled every 8 hours and the current-period funding and unrealized PnL will be merged into the realized PnL after the settlement and be transferred to the user's account balance.
2.Funding Rate: As there is no delivery date, the Perpetual Contracts tracks the underlying spot price closely by a funding rate mechanism.
3.Underlying index: perpetual contracts use spot index price of the underlying asset, and make sure the price for perpetual contracts tracks the spot price closely via funding rate mechanism. Therefore, unlike futures, perpetual contracts trade close to the index price of the underlying asset. The reference index for liquidation can lower the unnecessary liquidation when met with volatility.
4、 Tiered Margin Maintenance Ratio System: Margin Maintenance Ratio is the lowest required Margin Ratio for a user to maintain their current open position(s). When the Margin Ratio of the account fall below the Margin Maintenance Ratio, full or partial liquidation will occur. This tiered Margin Maintenance Ratio system is for users with different positions. Basically, the larger the positions held, the higher Margin Maintenance Ratio will be required, and thus lower leverage will be available.
Mechanism for USDT-Settled Perpetual Contract
Margin ratio and liquidation: When the margin ratio is equal to or less than 0, liquidation will be triggered.
Isolated Margin Ratio = (Account Equity / Occupied Margin) * 100% – Adjustment Factor.
Cross Margin Ratio = Account equity / ∑all swaps under the cross margin account（Occupied margin * Adjustment factor）– 100%
Funding: funding is a fee paid between the buyer and seller every 8 hours at the settlement.
If the funding fee rate is positive, the longs have to pay funding to the shorts.
If the funding fee rate is negative, the shorts have to pay funding to the longs. (Only users with net position greater than 0 at the settlement have to pay or receive funding.)
Settlement time (GMT+8): 00:00, 8:00, 16:00
Isolated and Cross Margin Mode
Isolated margin mode: A kind of cross margin mode under which the margin for each swaps is calculated separately, that is, all the assets in the isolated margin account will be used as the margin for the position of the same swaps; The account equity and PnL for each swaps are calculated separately, and the position margin and PnL of each swaps will not affect each other.
For example: Assume user A holds an isolated position of BTC/USDT swaps and an isolated position of ETH/USDT swaps at the same time. If the margin ratio of the isolated position of BTC/USDT swaps is ≤0% and triggers a liquidation, there will be no assets in this isolated account any more. At this time, the isolated position of ETH/USDT swaps could be held continually without being affected by the liquidation of BTC/USDT swaps.
Cross margin mode: All swaps under the cross margin mode share the same account equity, and some data such as their PnL, the occupied margin and the margin ratio are calculated jointly.
Assume user B holds positions of BTC/USDT and ETH/USDT swaps in cross margin account. Then the USDT assets in the cross margin account will be the margin for both BTC/USDT and ETH/USDT swaps. The margin ratios of these two swaps in the cross margin account are calculated jointly. Therefore, when the margin ratio of USDT cross margin account is ≤0 %, the positions of BTC/USDT and ETH/USDT swaps in cross margin account will trigger a liquidation at the same time.
The differences between USDT-Settled Perpetual Contracts and Coin- Settled Perpetual Contracts
USDT-Settled Perpetual Contracts is quoted in USDT while Coin- settled Perpetual Contracts is quoted in USD, therefore, their index prices are different. For example, the index price of BTC/USDT swaps is composed of the BTC/USDT spot prices from different exchanges while the index price of BTC/USD swaps is originated from the BTC/USD spot prices of different exchanges.
Contract face value:
The contract face value of USDT- Settled Perpetual Contracts corresponds to its underlying asset. For example, the face value of each BTC/USDT swaps contract is 0.01 BTC. For Coin- Settled Perpetual Contracts, the value of each contract is in USD. For example, the face value of each BTC/USD swaps contract is 100 USD.
USDT- Settled Perpetual Contracts of all tokens use USDT as margin. Users could trade various swaps only with USDT. Coin- Settled Perpetual Contracts use the underlying asset of each swap as margin, therefore, users have to hold the corresponding token to trade. For example, users have to transfer BTC as margin first to trade BTC/USD swaps.
Since the margin token of the two contracts is different. The value risk of each margin token will also be different in a falling market. For example, if the BTC price falls, the margin (BTC) required for positions of BTC/USD swaps will be more. However, for USDT- Settled Perpetual Contracts, the margin token is USDT, meaning the falling BTC price won’t affect the value of its margin token USDT.
PnL calculating token :
USDT- Settled Perpetual Contracts of all tokens use USDT to calculate PnL while coin- Settled Perpetual Contracts use the underlying asset to calculate. For example, in BTC/USD swaps trading, BTC is used for calculating PnL.
The difference in PnL calculating currency leads to different PnL models. Assume we open 100 conts of BTC/USDT swaps and BTC/USD swaps at the same price, the PnL model of each will be as following: