Understand Perpetual Contract & Two-way Position

Q : let's get to know Perpetual Contract and Two way position.

A : Sure, Start with Perpetual Contract first.

Q : OK, can you tell me what a Perpetual Contract is?

A : Gate.io Perpetual Contract is an innovative financial derivative in crypto space, which is similar to traditional futures contract but has no expiration and settlement. Traders only need to focus on the ups and downs of price, making it an easy-to-use instrument. Moreover, it provides higher leverage than the traditional futures.

Perpetual Contract vs Futures Contract

Q : How to trade with Gate.io Perpetual ?

A : For your better understanding, let us assume that the spot price and the contract price are the same, and do not consider trading commissions and funding fees involved.

① Scenario 1 Buy/Go Long

The Bitcoin price is 5000 USD. Mr. Lee and Mr. Wang both are bullish on Bitcoin price.

Mr. Lee buys 1 BTC in spot market. Mr. Wang uses 1 BTC as margin to buy 500,000 perpetual contracts (100 BTC equivalent) with 100x leverage. If the BTC price rises to 5500 USD, Mr. Lee will earn 500 USD, a 10% rate of return, while Mr. Wang will earn 10 BTC equivalent, a 1,000% rate of return.

②Scenario 2 Sell/Go Short

The BTC price is 5,000 USD. Mr. Lee and Mr. Wang both expect BTC price to go down later. So, Mr. Lee sells his 1 BTC to stop loss and Mr. Wang sells/goes shot of his 500,000 contracts (100 BTC equivalent). If the BTC price drops to 4,500 USD, Mr. Lee will protect himself from a 10% loss, while Mr. Wang will gain a 1,000% rate of return instead.

③Risk of Perpetual Contract Trading

The BTC price is 5,000 USD. Mr. Lee and Mr. Wang expect BTC price to go up. Mr. Lee buys 1 BTC in spot market while Mr. Wang chooses to go long on 500,000 perpetual contracts (100 BTC equivalent) with a 100x leverage of 1 BTC as margin. Unfortunately, the BTC price does not go up but drops to 4,990 USD later. Mr. Lee loses 0.2% while Mr. Wang loses 20%.

lf BTC price falls all the way to 4,975 USD. Mr. Lee would lose 0.5% while Mr. Wang would be left with only 0.5 BTC in his margin account (0.5% is the maintenance margin level). Mr. Wang would suffer forced liquidation and lose all his margin.

In the above scenarios, Mr. Wang gains multiplied earnings using Gate.io perpetual trading than Mr. Lee with the same amount of investment, provided that they make correct predictions about market movement. This method brings him returns even in a falling market. However, if the market moves against their expectations, Mr. Wang would suffer amplified losses.

Q : Anything should be aware of on this?

A : The above scenarios are simplified examples for your better understanding of perpetual contract. For more information about funding fee, auto-deleveraging, mark price, etc., please visit our website for details.

Q : Now let's go on to Two-way Position.

A : The perpetual contract of Gate.io supports a two-way position mode, referring to a contract that is allowed to hold positions in both long and short directions at the same time.

Mode Switch

The switching between one-way and two-way position holding refers to the user's contract settlement of one currency entering into force simultaneously.

The requirement for switching is that the user is not holding any contract position under this currency or having any pending orders.

Isolated Margin

For the contracts under isolated margin, the two positions under a two-way position mode have independent risks, that have their independent margin and close price. But the leverage and risk limit is consistent.

Cross Margin

For the contract with cross margin, the risk hedges while the profit and loss cancel each other out. The locked profit and loss overlapping on both sides are unrealized on the position, yet it will be displayed as 'deleveraging PNL' in the user's billing history.

The margin and liquidation price are shared by both sides. If the forced liquidation is triggered, only the exceeding part of the larger position will be closed while the overlapping part remains locked. If both sides are equal, there's no risk of liquidation.

Switching between Isolated and Cross

The requirement for switching between isolated and cross is that there is no holding or pending orders in the position.

Placing Orders

For two-way position mode, there is only long or short position, in stead of reverse position. So the reduce-only order is removed for the selection. Correpondingly, the revious two position of 'long' and 'short' become 'open long', 'close long', 'open short', and 'close short'.

Since there is no distinguish between one-way and two-way mode with in th engine, that the direction of the orders are displayed accordingly to the current mode, in stead of the actual mode when placing the order.

Q : Let's go to a question session.