1. What is a perpetual contract?
The perpetual contract provided by Bit-Z is a financial derivative suitable for virtual currency. The biggest difference between a perpetual contract and a traditional future is that there is no delivery date, and the user can hold the position indefinitely，making it more similar with spot trading.
2. Contract Types
The concept of currency types in contract transactions is to be explained firstly:
• Base currency, the subject of the transaction
• Quote currency, used to calculate
• Settle currency, account wallet
There are three types of Bit-Z's contracts: forward contract, reverse contract, and dual currency contract, which can be settled by BTC, ETH, USDT, BZ, etc. According to different currency combinations, the contract types can be divided into the following three categories:
• Ordinary forward contract. The denomination currency is the same as the settlement currency. For example, the BTC_USDT contract (opened) has BTC as its base currency, and USDT as the denomination and settlement currency. The price is the number of USDTs for a BTC value. It is the simplest type with the same concept as spot trading, making it the easiest to understand.
• Reverse contract. The base currency is the same as the settlement currency. For example, BTC_USD (currently not open). The reason for doing a reverse contract is that you don't want to maintain the wallet of the fiat currency (USD), and at the same time trade the currency in the wallet (BTC). That is, the relationship between buying and selling BTC with USD is reversed, but USD is still used to mark the price.
• Dual currency contract (quanto). The so-called dual currency is the type with a denomination currency different with its settlement currency. Since there are two different currencies, it is necessary to define a conversion relationship between them. Take ETH_USD contract (currently not open) as an example, ETH is the base currency, USD is the denomination currency, and BTC is the settlement currency. The reason for doing a dual currency contract is that you don't want to maintain a wallet of a base currency (such as ETH), but also can trade through the currency in your existing wallet (clearing currency, BTC), and use people`s most familiar fiat currency (denomination currency, USD) to mark the price.
|Types||Example||Base currency||Quote currency||Settle currency|
|Ordinary forward contract||BTC_USDT||BTC||USDT||USDT|
|Dual currency contract||ETH_USD||ETH||USD||BTC|
3. How to calculate the value and profit and loss?
The value of the position and the way in which the profit and loss are calculated vary depending on the type of contract mentioned above.
• Ordinary forward contract, similar to spot trading:
Value: position size * price
Profit and loss: position size * (closing price - opening price)
• Dual currency contract, similar to a normal forward contract, but multiplied by the conversion coefficient between the denomination and the settlement currency: Value: position size * price * conversion coefficient
Profit and loss: position size * (closing price - opening price) * redemption coefficient
• Reverse Contract: Value: Position Size / Price Profit and Loss: Position Size * (1/Opening Price - 1/Closing Price)
4. Why does forward contract use USDT as the denomination currency instead of USD?
In order to allow everyone to trade according to the BTC_USDT transaction price of mainstream digital currency exchanges such as Huobi, OKEX and Binance, Bit-Z's forward contract is mainly priced with USDT. Some may also use USD as trading unit.
5. Why does reverse contract use USD as the denomination currency instead of USDT?
The stable currency such as USDT is used as a medium of exchange in spot trading to connect the world of digital currency and fiat currency.
But in a contract transaction, transactions and profits and losses can be completed with only one currency. So there is no need to maintain the currency wallet and its deposits and withdrawals. Using USD can avoid the impact of USDT exchange rate on value.
6. What is long and short?
If you expect the market to rise, go long (buy). If the market does rise, it will be profitable, otherwise it will lose money.
Short (sell) and vice versa.
Users can only have one position under the same contract. You can't do long and short at the same time.
7. What is leverage?
Leverage allows for larger transactions with the same principal. Leverage can amplify gains and losses.
8. How much leverage does Bit-Z offer?
The amount of leverage Bit-Z offers varies from product to product. Leverage is determined by the Initial Margin and Maintenance Margin levels. These levels specify the minimum equity you must hold in your account to enter and maintain positions. Leverage is not a fixed multiplier but rather a minimum equity requirement.
The highest leverage Bit-Z offers is up to 100x leverage on its Perpetual BTC / USDT Perpetual Contract.
9. What is initial margin?
The initial margin is the minimum amount required to open a position.
The initial margin for an order is (trust value / leverage) + opening fee + liquidation fee.
The initial margin for a position is (position value / leverage) + liquidation fee.
10. What is maintenance margin?
Maintaining a margin is the minimum amount required to maintain your existing position.
The margin for the maintenance of a position is (position value * maintenance margin ratio) + liquidation fee.
In general, the maintenance margin ratio is half of the maximum leverage ratio`s reciprocal. For example, if the maximum leverage the BTC_USD supports is 100 times, the margin ratio will be maintained at 0.5%.
11. Where will my funds go?
After you transfer the BTC or USDT to the contract account and entrust and hold the position, your funds will be in three places: the available balance, the order margin, and the position margin. Unrealized PNL will be settled in the balance of the contract account after the liquidation is completed.
12. What is forced liquidation?
If your margin balance in this position is below the maintenance margin level, your position will be forced to liquidate. The margin balance includes unrealized PNL. The unrealized PNL is the floating profit and loss calculated with the mark price as the liquidation price.
The mark price triggering forced liquidation is the liquidation price.
The forced liquidation process will be completed by the market itself, the insurance fund, and the auto-deleveraging successively.
Under a contract, the maintenance margin ratio is fixed. The initial margin is related to leverage. The greater the leverage, the less the initial margin, and the closer it is to maintaining the margin, the easier it is to be forced to liquidate. On the other hand, the greater the leverage, the greater the proportion of earnings can be. Risks and returns are directly proportional.
13. What is marked price (fair price)?
The mark price (or fair price) can be simply understood as value of the average price of the outer tier 1 exchanges such as Huobi, Binance, coinbase, bitstamp, etc., calculated with other judgments such interest rate and handicap spread. It is very close to the average outer price.
Bit-Z decides user's forced liquidation with the marked price (fair price) instead of the inner transaction price.
The marked price is based on the weighted price of the external market plus the capital cost basis that decreases over time.
14. Why use the marked price?
Using marked price can prevent someone from maliciously operating the market and causing unnecessary forced liquidation.
In addition, using marked prices can also help anchor inner transaction prices and external spot transaction prices. For example, the external spot price is 5000, while the inner price is around 5010. At this point, it is easier to be liquidate by doing long (opening at 5010). The user is then encouraged to short, thus lowering the inner price to approaching the external spot price.
15. What is an insurance fund?
The forced liquidation is to close the position at the bankruptcy price. The bankruptcy price is the marked price at which the position margin balance (including unrealized PNL) is only equal to the closing fee.
If the actual average transaction price is better than the bankruptcy price, then the remaining amount (ie, the amount that is not actually lost) will be added to the insurance fund.
If the marked price breaks through the bankrupt price and the liquidation order is still not digested by the market, the insurance fund will be used to digest it.
16.what is auto-deleveraging?
In forced liquidation, if the insurance fund is still not enough to digest the liquidation order, the auto-deleveraging is enabled. And the user with the highest profit is selected from the users holding the reverse position to lighten the position to digest the unfinished liquidation order.
Deleveraging sequence is calculated by earnings and leverage. Investors with more earnings and higher leverage will be deleveraged first.
If the user is automatically lighted up, all unfilled orders will be cancelled first.
The Bit-Z website has a ranking indicator for the user in auto-deleveraging system. The more lights, the higher the ranking, the more likely it is to automatically lighten up. To avoid being automatically lightened up, you can close the position and reopen the position.
17.Isolated and cross position
Under isolated position mode, the position margin is a fixed value. Start with the initial margin, and you can change the margin amount by adjusting the leverage, the risk limit, and topping up or withdrawing the margin. When the margin balance is lower than the maintenance margin, a forced liquidation is triggered. The amount of the position margin is the maximum loss of the user.
Under the cross position mode, all balances in the user account are used as margin. The user can set the positions under multiple contracts to the cross position mode, and these positions share the account balance as a margin. However, the unrealized PNL of the profitable position cannot be used as the margin for other positions.
18.How to charge transaction fees
The transaction fee is different for takers and makers:
• Taker: The order that was last commissioned.
• Maker: The order that was first commissioned, and the negative number represents the transaction fee awarded by the platform.
The transaction fee is calculated on the basis of the position value and has nothing to do with the leverage.
19. What is the risk limit?
Maintaining the margin ratio is the space left for the exchange to complete the forced liquidation. The lower the maintenance margin ratio, the smaller the space and the higher the liquidity requirements for the exchange.
In addition to the liquidity of the exchange, there are also factors of the number of liquidation positions. The smaller the number, the easier it is to complete the forced liquidation. A large number of forced liquidation will itself have a big impact on the market, and even directly crush the market over the maintenance margin ratio.
In order to reduce this effect, we limit the number of user positions, that is, the risk limit. If the user wants to hold more positions, he can increase the risk limit, but this will also increase the the maintenance margin ratio (and correspondingly increase the initial margin ratio, that is to lower the allowable leverage).
20. What is funding fee?
Funding fee is used to anchor the spot price.
Funding fee is the value of the holding position multiplied by the fund rate. When the rate is positive, the long position is short. Negative is the opposite. If you do not hold a position, you will not be involved in the collection or payment of funds.
Funding fee are generated every 8 hours, at 0:00, 8:00, 16:00 UTC time.
The calculation of the fund rate mainly considers the interest difference between the denomination currency and the settlement currency, as well as the difference between inner and external spot price basis.
21. What types and characteristics does order have?
• Limit order. Try to complete the order first. if not, it will be pended.
• Market order. Start to complete once the opportunity appears until no more transactions can be done.
• Conclude or cancel instantly. Complete the order, but without pending the unfinished part.
• Post only order. Pend orders only without completing any . If the order is concluded immediately when the order is placed, it will not be conducted and cancelled. It can be used to guarantee that no taker transaction fee will be charged and to prevent misoperation.
• Lightening only order. When the order is matched, it will only lighten up the position. If the position size is exceeded, it will be cancelled.
• Liquidation order. A position can only have one liquidation order at a time. The liquidation order also has the characteristic of only lightening the position.
22. What are the restrictions on order price?
• The order price cannot deviate by more than 20% from the current marked price.
• If the ordert is of lightening up, the order price cannot break through the bankruptcy price of the position.
• If the order is to of buying in, the entrusted price cannot exceed the liquidation price of the position.
• If you trade at this price, you will not be forced to liquidate immediately. This is usually the case when the innert price deviates significantly from the marked price. If the user still wants to trade at this price, he can try to lower the leverage and try again.