- Perpetual Contracts Guide
- BTCUSD: Contract Specification
- Fair Price Marking
- Auto Deleveraging
- Risk Limits
- Cross and Isolated Margin
- Split Positions and Merge Positions
- Order Types FAQ
- Automated Trading Assistant
- Insurance Fund
Perpetual Contracts Guide
A Perpetual Contract is a derivative product that is similar to a traditional Futures Contract, but has a few differing specifications. There is no expiry or settlement.
Perpetual Contracts mimic a margin-based spot market and hence trade close to the underlying reference Index Price.
* This is in contrast to a Futures Contract which may trade at significantly different prices due to basis.
* The primary mechanism to tether to spot price is Funding.
Mechanics of a Perpetual Contract Market
When trading perpetual contracts, a trader needs to be aware of several mechanisms of the market. The key components a trader needs to be aware of are:
- Position Marking: Perpetual Contracts are marked according to the Fair Price Marking method. The Mark Price determines liquidation prices.
- Initial and Maintenance Margin: These key margin levels determine how much leverage one can trade with and at what point liquidation occurs.
- Trading Fees: taker fee 0.1%, maker fee 0.
- Funding: Periodic payments exchanged between the buyer and seller every 8 hours. If the rate is positive, then longs will pay and shorts will receive the rate, and vice versa if the rate is negative. *You will only pay or receive funding if you hold a position at the Funding Timestamp.
- Funding Timestamps: 12:00 CST (UTC+8), 20:00 CST (UTC+8) and 04:00 CST (UTC+8).
You can observe the current funding rate for a contract on the top right corner of the Trade tab under 'New Order'. Historical rates are in the Funding History.
Funding occurs every 8 hours at 04:00 CST (UTC+8), 12:00 CST (UTC+8) and 20:00 CST (UTC+8).
*You will only pay or receive funding if you hold a position at one of these times. If you close your position prior to the funding exchange then you will not pay or receive funding.
The funding you pay or receive is calculated as:
Funding = Position Value * Funding Rate
Your position value is irrespective of leverage. For example, if you hold 100 BTCUSD contracts, funding is charged/received on the notional value of those contracts, and is not based on how much margin you have assigned to the position.
When the Funding Rate is positive, longs pay shorts. When it is negative, shorts pay longs.
Funding Rate Calculations
The Funding Rate is comprised of two main parts: the Interest Rate and the Premium/Discount. This rate aims to keep the traded price of the perpetual contract in line with the underlying reference price. In this way, the contract mimics how margin-trading markets work as buyers and sellers of the contract exchange interest payments periodically.
Interest Rate Component
Every contract traded on TDEx consists of two instruments: a Base currency and a Quote currency. For example, on BTCUSD, the Base currency is BTC while the quote currency is USD. The Interest Rate is a function of interest rates between these two currencies:
Interest Rate (I) = (The Interest Rate for borrowing the Quote currency - The Interest Rate for borrowing the Base currency)/Funding Interval
Interest Base Index = The Interest Rate for borrowing the Base currency
Interest Quote Index = The Interest Rate for borrowing the Quote currency
Funding Interval = 3 (Since funding occurs every 8 hours)
The perpetual contract may trade at a significant premium or discount to the Mark Price. In those situations, a Premium Index will be used to raise or lower the next Funding Rate to levels consistent with where the contract is trading. The Premium Index is calculated as follows:
Premium Index (P) = (Max(0, Impact Bid Price - Mark Price) - Max(0, Mark Price - Impact Ask Price))/Spot Price + Fair Basis used in Mark Price
Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid side
Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask side
Fair Value = Index Price * % Fair Basis * (Time to Expiry/365)
Final Funding Rate Calculation
TDEx calculates the Premium Index (P) and Interest Rate (I) every minute and then performs an 8-Hour Time-Weighted-Average-Price (TWAP) over the series of minute rates.
The Funding Rate is next calculated with the 8-Hour Interest Rate Component and the 8-Hour Premium/Discount Component. A +/-0.05% dampener is added.
Funding Rate (F) = Premium Index (P) + clamp(Interest Rate (I) - Premium Index (P), 0.05%, -0.05%)
Hence, if (I - P) is within +/-0.05% then F = P + (I - P) = I. In other words, the Funding Rate will equal the Interest Rate.
This calculated Funding Rate is then applied to a trader’s BTC Position Value to determine the Funding Amount to be paid or received at the Funding Timestamp.
BTCUSD: Contract Specification
BTCUSD is a BTC/USD perpetual contract priced on the BTCUSD Index. Each contract is worth 1 USD of Bitcoin.
Funding is paid and received every 8 hours.
BTCUSD uses a Premium Index to calculate funding rates. The underlying interest rates are quoted in the BTC Interest Index and USD Interest Index, and the premium rate is quoted in the BTCUSD Premium Index. These are used to calculate the final funding rate.
For instance, if the funding rate is 0.0100%, longs will pay 0.0100% while shorts will receive 0.0100%. TDEx does not charge fees on funding payments.
Expiry: This instrument is perpetual and does not expire.
More information about the funding rate is available in the Perpetuals Guide.
I = Interest Rate, B = Interest Base, Q = Interest Quote, T = Funding Times Per Day
P = Premium Rate, F = Funding Rate
*The Funding Rate is the rate exchanged between users.
*The Premium Rate is used to calculate it, adjusted by the Interest Rate by up to 0.05%.
I = (Q - B)/T
F = P + Clamp(I - P, -0.05%, 0.05%)
I = 0.0100% I = (0.06% - 0.03%)/3
F = 0.0100% F = -0.0069% + Clamp(0.0100% - -0.0069%, -0.05%, 0.05%)
Fair Price Marking
TDEx employs a unique system called Fair Price Marking to avoid unnecessary liquidations in its highly leveraged products. Without this system, unnecessary liquidations may occur if the market is being manipulated, is illiquid, or the Mark Price swings unnecessarily relative to its Index Price. The system is able to achieve this by setting the Mark Price of the contract to the Fair Price instead of the Last Price.
The Fair Price is equal to the underlying Index Price plus a decaying Funding basis rate.
Note: This means that you may see a positive or negative Unrealized PNL immediately after an order executes. This happens when the Fair Price is slightly different from the Last Price. This is normal and does not mean you have lost money, but be sure to keep an eye on your Liquidation Price to avoid a premature liquidation.
Calculation of Fair Price for Perpetual Contracts
The Fair Price for a Perpetual Contract is calculated using only the Funding Basis rate:
Funding Basis = Funding Rate * (Time Until Funding/Funding Interval)
Fair Price = Index Price * (1 + Funding Basis)
Overview of Auto-Deleveraging (ADL)
When a trader's position is liquidated, the position is taken over by the TDEx liquidation engine. If the liquidation cannot be filled by the time the mark price reaches the bankruptcy price, the ADL system automatically deleverages opposing traders' positions by profit and leverage priority.
The price at which a traders' positions are closed out is the bankruptcy price of the initial liquidated order.
ADL Priority Deleveraging Ranking
At all times, your position in the queue is shown by an indicator. This indicator represents your priority in the queue in 20% increments:
In the example, all 'lights' are lit, which would mean your position is in the top percentile. In the case of a liquidation that is not able to be caught in the market, you may be deleveraged.
The Insurance Fund is used to prevent ADL. If it is depleted for a given contract, ADL will occur.
Priority Ranking Calculation
Deleveraging priority is calculated by profit and leverage. More profitable and higher leveraged traders are deleveraged first.
The ranking calculation is as follows:
Ranking = PNL Percentage * Effective Leverage (if PNL percentage > 0)
= PNL Percentage/Effective Leverage (if PNL percentage < 0)
Effective Leverage = abs(Mark Value)/(Mark Value - Bankrupt Value)
PNL percentage = (Mark Value - Avg Entry Value)/abs(Avg Entry Value)
Mark Value = Position Value at Mark Price
Bankrupt Value = Position Value at Bankruptcy Price
Avg Entry Value = Position Value at Average Entry Price
TDEx imposes risk limits on all trading accounts to minimize the occurrence of large liquidations on margined contracts.
As users amass larger positions, they pose a risk to others on the exchange who may experience a deleveraging event if the position cannot be fully liquidated. The Step model helps avoid this by increasing margin requirements for large positions.
Dynamic Risk Limits
Each instrument has a Base Risk Limit and Step. These numbers are used to calculate your Maintenance Margin requirement at each position size. As the position size increases, the Maintenance Margin requirements will increase. Maintenance Margin requirements will automatically increase and decrease as your risk limit changes.
|Base Risk Limit||Base Maintenance Margin|
Dynamic Risk Limit and Maintenance Margin
|Risk Limit||Maintenance Margin|
|Larger than 3000000 contracts||3%|
Cross and Isolated Margin
In the derivatives space, margin refers to the amount needed to enter into a leveraged position. Initial and Maintenance Margin refer to the minimum initial amount needed to enter a position and the minimum amount needed to keep that position from getting liquidated. As various users have varying trading strategies, TDEx has employed two different methods of margining:
*Cross Margin: Margin is shared between open positions. When needed, a position will draw more margin from the total account balance to avoid liquidation.
*Isolated Margin: Margin assigned to a position is restricted to a certain amount. If the margin falls below the Maintenance Margin level, the position is liquidated. However, you can add and remove margin at will under this method.
Cross Margin, also known as 'Spread Margin', is a margin method that utilizes the full amount of funds in the Available Balance to avoid liquidations. Any realized PNL from other positions can aid in adding margin on a losing position. This margin method is useful for users who are hedging existing positions and also for arbitragers that do not wish to be exposed on one side of the trade in the event of a liquidation.
In this mode, your liability is limited to the initial margin posted. In the event of a liquidation, any Available Balance you may have will not be used to add margin to your position.
Isolated Margin is useful for speculative positions. By isolating the margin the position uses, you can limit your losses to the initial margin set, and thus helps short-term speculative trade ideas that turned out incorrectly. In a volatile market, a highly leveraged position can lose equity quickly. However, note that although TDEx aims to minimise liquidations from happening, in volatile markets highly-leveraged are more likely to be liquidated. For example, a 20x position will be liquidated after a 5% move against you.
When using Isolated Margin, you are able to adjust your leverage on the fly via the leverage slider.
Note that, by default all positions are initially set to 'Isolated Margin'.
Setting and Adjusting Isolated Margin
By default, Isolated Margin is enabled. Users can enable or switch to Isolated Margin on the order controls panel.
Once margin is isolated on a position, the amount of margin assigned to the position is adjustable. This allows you to choose a desirable leverage and liquidation price. Your liquidation price on the position is shown in the Open Positions tab and will update as you adjust your leverage.
Isolated Margin and Mark Price
During times of extreme volatility or during significant bull or bear runs, the markets may temporarily trade at a distance from the Mark Price.
If the price that you buy or sell at is significantly far away from the Mark Price, you will see an immediate unrealized loss on the position upon opening. However note that this does not mean that you have necessarily lost money. It is advisable that during these market conditions to pay attention to your liquidation price and avoid using the maximum leverage on Isolated Margin, since your position may be liquidated fairly quickly given the immediate unrealized loss the position saw upon opening.
Noted that, if you are going long at a premium to the Mark Price or going short at a discount to the Mark Price, i.e. helping the market price go up or down, your account may be blown up quickly. To prevent this from happening, you may be charged additional margin to make up the difference.
Split Positions and Merge Positions
Split Positions and Merge Positions
Split Positions is enabled by default. An independent position is opened every time a trader makes his entry into the market. A position with over one contract can be split into two positions, or several different positions can be merged into one position.
A user can select Merge Positions to apply this setting. Once it is enabled, a user has only one position in only one direction. New open positions will be added to the original position automatically.
TDEx contracts are highly leveraged. To keep these positions open, users are required to hold a percentage of the value of the position on the exchange, known as the Maintenance Margin percentage. Minimum Maintenance Margin Requirements can be reviewed on the Risk Limits Page.
If you cannot fulfill your maintenance requirement, you will be liquidated and your maintenance margin will be lost.
You can adjust your liquidation price per position by adding additional margin via the Leverage Slider or via the liq. price tab.
Policy on Minimizing Liquidations
TDEx uses Fair Price Marking for the purpose of avoiding liquidation due to illiquid markets or manipulation.
You can enable Cross Margin, also known as 'Spread Margin'. It is a margin method that utilizes the full amount of funds in the Available Balance to avoid liquidations. Any Realized PNL from other positions can aid in adding margin on a losing position.
TDEx imposes Risk Limits that require higher margin levels for larger position sizes. This gives the TDEx liquidation system more usable margin to effectively close large positions that would otherwise be difficult to safely close. If it is safe to do, larger positions are incrementally liquidated.
Using Cross Margin
The liquidation system attempts to bring a user down to a lower Risk Limit, and thus lower margin requirements by:
1. Cancelling any open orders to release margin and then attempting to bring a user down to a Risk Limit associated with their current position.
2. If this does not satisfy the maintenance margin requirement, then in split positions, the most losing positions will be first liquidated; in merging positions, the position will be liquidated by the liquidation engine at the bankruptcy price.
Using Isolated Margin
If a liquidation is triggered, then the position will be taken over by the liquidation engine, but other position and open orders will not be affected.
System Gains and Losses
If TDEx is able to liquidate the position at better than the bankruptcy price, the additional funds will be added to the Insurance Fund.
If TDEx is unable to liquidate the position at the bankruptcy price, TDEx will spend the Insurance Funds on aggressing the position in the market in an attempt to close it. If this still does not close the liquidated order, this will then lead to an Auto-Deleveraging event.
Order Types FAQ
This section outlines the various order types available with some examples.
A market order is an order to be executed immediately at current market prices. Traders use this order type when they have an urgent execution. Pay attention to the order book when selecting this order type, otherwise a large market order may 'walk the book' and incur market-impact costs.
User Inputs: Amount
Limit orders are used to specify a maximum or minimum price the trader is willing to buy or sell at. Traders use this order type to minimise their trading cost, however they are sacrificing guaranteed execution as there is a chance the order may not be executed if it is placed deep out of the market.
User Inputs: Amount, Limit Price
Limit Orders with One Click
TDEx applies block displays that are common in forex trading. The short and long blocks can act as buttons to submit orders at market price with one click. Nonetheless, we do not stop ourselves from innovation. Taking our fee policy into consideration, we bring in a new design – Limit Orders with One Click.
A trader who removes liquidity from our order book will have to pay trading fees for being a taker. This is the case in Market Orders with One Click. On the other hand, Limit Orders with One Click will be placed in the order book waiting for execution. The trader meanwhile can select 'Post Only Orders' to make sure that his order will not be immediately executed. In this way, the trader adds liquidity to our order book and is free from trading fees for being a maker.
A Stop Order is an order that does not enter the order book until the market reaches a certain Trigger Price. Traders use this type of order for two main strategies:
- As a risk-management tool to limit losses on existing positions, and
- As an automatic tool to enter the market at a desired entry point without manually waiting for the market to place the order.
TDEx has three types of Stop Orders:
1. Stop Market Order - A Market Order will be placed when the market reaches the Trigger Price.
2. Stop Limit Order - A Limit Order will be placed when the market reaches the Trigger Price.
3. Trailing Stop Order - A Trailing Value is set; if the price reverts by an amount equal to the Trailing Value, a Limit Order/Market Order triggers.
For opening a position, the Trigger Price can be specified as either the Last Price or Mark Price. The Trigger Price of a current position is specified as the Last Price. You can set to execute the order at market price or limit price after the Trigger Price is reached.
Trailing Stop Orders
The Trailing Stop Order is used to track the maximum possible loss and set a stop loss spread based on the maximum possible loss to achieve maximum profitability. Imagine that as the market price rises, users need to constantly increase the stop loss price to protect increasing profits. Setting up the Trailing Stop Order can free traders from constant operation. After the Trailing Stop Order is submitted, the stop price rises by the trail amount as the market price rises. If the market price falls, the stop loss price doesn't change, and a Limit Order or a Market Order is submitted when the stop price is hit.
Stop Limit Order Example
Amount = 10 Contracts
Stop Price = 100
Limit Price = 90
Trigger = Mark Price
Direction = Buy
In this example, the user has selected a Stop Limit Buy Order with the Mark Price set as the Trigger Price. If the Mark Price hits 100, then a Limit Order will be placed for 10 contracts at 90.
User Input: Amount, Stop Price, Limit Price
Trailing Stop Order Example
Amount = 10 Contracts
Limit Price = -20
Trail Value = 5
Direction = Buy
Once the user places this order type, a buy Limit Order of 10 contracts will only be placed when the Mark Price rises more than the Trail Value of 5 here. However, if the Mark Price falls, then this order type will chase it and will only execute if the Mark Price rises by the Trail Value of 5 from wherever it drops to.
Stop Loss Entry
Using the strategy of Stop Loss Entry to enter a trade allows a trader to enter a more favorable trade subject to current market.
For a buy entry order, after the Last Price (which can be the Mark Price) is higher than the Trigger Price, the trader is able to place the buy order at market price or limit price.
For a sell entry order, after the Last Price (which can be the Mark Price) is lower than the Trigger Price, the trader is able to place the sell order at market price or limit price.
Take Profit Orders
A Take Profit Order is somewhat similar to a Stop Order, however instead of executing when the price moves against the position, the order executes when the price moves in a favorable direction. Traders predominately use Take Profit orders as opposed to Limit orders to increase the chances of closing out a position, or 'taking profit'. They do this by specifying a Market order instruction to be executed once the market reaches the predefined Trigger Price.
The Trigger Price can only be specified as the Last Price. When the Trigger Price is reached, if traders want to execute the order at a Limit Price, they can select 'Conditional Close' to close positions at a Limit Price.
A Hidden Order is a Limit Order that is not visible on the public orderbook. Users can access it via the Limit Order, Stop Limit Order or Take Profit Limit Order selection via checking the 'Hidden' box. Traders use this order type when they don't want to inform the market of their trading intentions.
User Input: Amount, Limit Price, Hidden Box Checked
Hidden Order Example
Amount = 10 Contracts
Limit Price = 100
Hidden Box = Checked
Direction = Buy
A buy Limit Order for 10 contracts with a Limit Price of 100 will be submitted to the market and will not be visible to other traders. It will be executed as per a normal Limit Order based on time/price priority.
An Iceberg Order is a Hidden Order where a part of the order is displayed on the public orderbook. Since savvy traders are able to identify Hidden Orders, some traders prefer to use this order type in an attempt to be indistinguishable from traders continuously refilling their order. You can access this order type by selecting either the Limit Order, Stop Limit Order or Take Profit Limit Order and then checking the 'Hidden' box and inputting a quantity to display.
User Input: Amount, Limit Price, Hidden Box Checked, Display Amount
Iceberg Order Example
Amount = 10 Contracts
Limit Price = 100
Hidden Box = Checked
Display Quantity = 1 Contract
Direction = Buy
A buy Limit Order for 10 contracts with a Limit Price of 100 will be submitted to the market. Only a bid for 1 contract will be visible to other traders. If someone submits a sell Order for 3 contracts at 100 then 3 contracts will be executed from this order. After that, another bid for 1 contract will appear at 100 to other traders. As such, there will now be 7 contracts left remaining, with 1 only visible.
Noted that, all traders who place Hidden Orders are considered takers.
Post Only Orders
Post Only Orders are Limit Orders that are only accepted if they do not immediately execute. That is, Post Only Orders never take liquidity. Market makers use Post Only Orders in order to only submit passive orders so as to earn the Maker rebate. This order type can be accessed from the Limit Order, Stop Limit Order or Take Profit Limit Order selection by checking the 'Post-Only' box.
User Input: Amount, Limit Price, Post-Only Box Checked
Post-Only Order Example
Amount = 10 Contracts
Limit Price = 102
Post-Only Box = Checked
Direction = Buy
Best Ask = 101
If the Post-Only box was not checked in this example, then this order would execute in the market against the Best Ask of 101 and the order would pay the Taker fee. Given the Post-Only box is checked, this order will not execute and be cancelled. Only if the Best Ask was higher than 102 will this order be placed in the market.
Automated Trading Assistant
During TD token release, the number of TDs a user can earn depends on his trading volume. Therefore, we see in users the need of quick executions of orders to amass a huge trading volume.
TDEx provides robust APIs for trading. Users are able to execute advanced trading strategies via APIs. However, given that a majority of users do not use APIs, we develop the Automated Trading Assistant to enable a wider range of users to execute simple strategies.
Automated Trading Assistant can help open and close positions at fixed intervals set by users. What's more, the entry price and liquidation price can be set to follow the highest bid price and the lowest ask price in the order book. Users are able to use Post Only Orders in order to earn Maker rebate.
TDEx uses an Insurance Fund to avoid Auto-Deleveraging in traders' positions. The fund is used to aggress unfilled liquidation orders before they are taken over by the auto-deleveraging system.
The Insurance Fund grows from liquidations that were able to be executed in the market at a price better than the bankruptcy price of that particular position.
You can view the current and historical balances of the Insurance Fund below.