Blog

August 16, 2019

BTC Perpetual contract comparison

Perpetual Swap is a derivative product similar to a futures contract. However, unlike the traditional futures contract, the perpetual contract has no expiry (hence the name ‘perpetual’).

Deribit launched its BTC perpetual swap in August 2018, and almost immediately it became the most traded instrument on the platform. It is not unusual for the perpetual swap alone to make up 80% of the trading volume in a given day.
However, Deribit is not the only platform providing perpetual contracts. In the article below, you can see what sets Deribit’s BTC perpetual apart from other perpetual contracts in the market.

Funding

Perpetual contracts feature funding payments. These payments are incorporated so that the price of a perpetual contract stays as close as possible to the price of the underlying instrument’s price. If the perpetual trades higher than the index, the longs make funding payments to the shorts and vice versa. This will make the product less attractive to the longs and more attractive to the shorts, thus pushing the perpetual price back to the level of the index. For the funding mechanism to be the most efficient, Deribit has implemented a continuous funding calculation and exchange. This is a crucial distinction from other products in the market. A continuous funding mechanism ensures a more stable price relationship between the perpetual and the index price and avoids artificial volatility during funding times.

Index

It is vital that the index tracked by the perpetual is resistant against any manipulations and outliers in one of its constituents. If it is not, it can force false liquidations that are not caused by the general market conditions. For this reason, Deribit does not include the exchanges with the lowest and the highest prices, thus ensuring that the Deribit BTC Index tracks the real BTC market price.  

Liquidation

At Deribit, we believe in a fair and transparent market. We like to incorporate these principles also in the way we operate. Leveraged trading is a high-risk strategy; however, advanced risk management can decrease this risk. For this reason, we have developed an incremental liquidation system. As soon as an account does not have enough equity to maintain its positions (as assessed by the risk engine), the Deribit liquidation system will start closing small parts of the position in the market. However, as soon as the maintenance margin is lower than the margin balance, liquidation will stop. This ensures that the position is not closed at bankruptcy when the liquidation can be executed at a favorable price. Our insurance fund also gives an extra layer of security, as it is used to cover the negative balance of the bankrupt traders. Until this day, we have not had any socialized losses.

Contract details

 Deribit provides one of the highest market maker rebates in the market. We believe in equality of all market participants, therefore, providing the same rate for all.  Moreover, our subaccount system allows traders to have several separate positions on the same instrument. It is especially useful if the traders want to keep specific strategies separate, without having them averaged into a single position. It is essential if traders wish to have different strategies with various risk profiles simultaneously. If traders want the positions to be netted together on Deribit, they open them on the same account, and it is done automatically.

In the past year, we have listed the Ethereum perpetual and are looking forward to introducing even more products. We are happy to see our customers appreciating our products, and we continue to work hard to give them the best crypto derivatives in the market!