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Equal Weight Index Futures
Gate.io
Updated at:126 days 11 hours ago
Equal Weight Index Futures

Equal weight index is a future contract that provides the same weight to each underlying component token index.

Equal weight index gives each of its constituents the same weight and importance and periodically adjust to regain the balance. Example, consider an equally weighted index consisting of four components, A, B, C, and D, with price of 1, 2, ,5, 10 USDT respectively. Purchasing the index with 2000 USDT, you spend on each constituent 500 USDT and get amount of each token of 500, 250, 100 and 50 respectively.

If token A rises by 10%, token B falls by 5%, token C falls by 2% and token D rises by 3%, the index will change by 1.5%. Formula: (10%-5%-2%+3%)/4=1.5% The rise or fall of each token component has the same impact in determining the total value of the index. That is where the name equally weighted index comes.

Each component in the equally weighted index has the same weight at the beginning, but as rises and falls of any component over time, the weight of each component will changes. Hence a rebalancing will be forced quarterly.


The Advantages of Equal Weight Index Futures

Compared with futures with a single token as underlying, the index future has the following advantages:

1. Easier choice. Take DEFI as an example. DEFI consists of 10 tokens. To select one from those tokens to invest is very difficult and time consuming for many people. But invest in the index contract directly will be a much easier decision. If you are bullish on DeFi, you can buy DEFI index contract.

2. More diversified and less risk. Index tends to be less volatile compared with the rise and fall of a single component token, which can smooth the plunge and surge of tokens and leave you more time to stop loss.

Introduction of Index Future

ALT_USDT
t consists of tokens of large market cap and good liquidity, reflecting the general trend of cryptocurrency market capitalization movement.

EXCH_USDT
It consists of native tokens of mainstream exchanges, reflecting the development and outlook of exchanges.

DEFI_USDT
It consists DEFI tokens of good potential and liquidity, reflecting the outlook and development of DEFI industry.

PRIV_USDT
It consists of popular anonymous tokens , reflecting the outlook and development of anonymous token market


Index Components

Large market cap index (ALT_USDT)

|components | quantity |
| -------- | -------- |
| BCH_USDT | 0.6586 |
| BSV_USDT | 0.8591 |
| EOS_USDT | 60.2011 |
| ETH_USDT | 0.5159 |
| LTC_USDT | 3.4153 |
| XRP_USDT | 762.4276 |

Exchange token index (EXCH_USDT)

| components | quantity |
| -------- | -------- |
| BNB_USDT | 14.2064 |
| GT_USDT | 474.6535 |
| HT_USDT | 58.5645 |
| OKB_USDT | 47.3934 |

DeFi Index (DEFI_USDT)

| components | quantity |
| --------- | -------- |
| BNT_USDT | 69.1228 |
| COMP_USDT | 0.6856 |
| KAVA_USDT | 46.5766 |
| KNC_USDT | 70.3581 |
| LEND_USDT | 380.964 |
| LRC_USDT | 988.1423 |
| MKR_USDT | 0.1946 |
| REN_USDT | 694.927 |
| SNX_USDT | 33.6496 |
| ZRX_USDT | 271.2232 |

Anonymous coins index (PRIV_USDT)

| components| quantity |
| --------- | -------- |
| BEAM_USDT | 359.118 |
| DASH_USDT | 1.8937 |
| GRIN_USDT | 315.7064 |
| SERO_USDT | 797.639 |
| XMR_USDT | 1.8493 |
| XZC_USDT | 25.6393 |
| ZEC_USDT | 2.0659 |

About Index Rebalancing
Rebalancing is the process of regularly realigning the weightings of component indices to restore to the equally weighted status. In this process, if a token has a growth rate higher then the average, its quantity will be decreased; and if a token has a growth rate lower than the average, its quantity will be increased.

Example: Assume an equally weighted index consists of 4 component tokens, token A, token B, token C and token D, with price of 1, 2, 5, 10 USDT respectively. The initial index value is 1000 USDT, and the weight of each component index is 25%, with quantity of 250, 125.5, 50, and 25 respectively. Over a period of time, the prices of the four tokens have changed and now are 1.2, 3.2, 5.8, and 8 USDT respectively and the index value is 1191.6 USDT. Now the weight of each token are 25.18%, 33.70%, 24.34%, 16.78% respectively, in which token B has a much higher weight than initial 25% as its price rises higher and the token D has a much lower weight as its prices has fallen. In this case, we rebalance the indices to restore the weight of each component index to 25%. After rebalancing, the quantity of each component index are 248.25, 93.09, 51.36, and 37.24 respectively. Compared with the initial quantity, the overperfoming token B’s quantity decrease while the under performing token D's quantity increase.


Note: index value mentioned above is the total of each component index value, in which component index value is calculated by multiplying a component token’s price by its quantity in the portfolio. In the above example, index value: 1.2 * 250 + 3.2 * 125.5 + 5.8 * 50 + 8 * 25 = 1191.6

In rebalancing process, the adjusted token quantity are calculated by dividing the component index value by its price. In the above example,quantity of token B after rebalancing : 297.9 / 1.2=248.25

In practice, the weight are not decreased or increased directly to the target in one step. To make the process more smooth, the adjustment is made over a period of time, equally changed each time.
The formula to calculate the smoothed weight for each index is:

𝑠𝑚𝑜𝑜𝑡ℎ𝑒𝑑 𝑤𝑒𝑖𝑔ℎ𝑡𝑡,𝑖 = ( (𝑡𝑎𝑟𝑔𝑒𝑡 𝑤𝑒𝑖𝑔ℎ𝑡𝑟,𝑖 − 𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑤𝑒𝑖𝑔ℎ𝑡𝑟,𝑖) /𝑟𝑒𝑏𝑎𝑙𝑎𝑛𝑐𝑖𝑛𝑔 𝑙𝑒𝑛𝑔𝑡ℎ × 𝑛𝑢𝑚𝑏𝑒𝑟 of 𝑟𝑒𝑏𝑎𝑙𝑎𝑛𝑐𝑖𝑛𝑔 seconds t) + 𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑤𝑒𝑖𝑔ℎ𝑡𝑟,

where:
smoothed weightt,i = The weight for token i on time t.
target weight i,r = The weight of token i that corresponds to the weighting determined by rebalancing r.
reference weight i,r = The weight for token i for the reference time for rebalancing r. rebalancing length = The number of re-balance seconds in a multi-interval rebalancing.
Number rebalancing second t = The number of rebalancing seconds on time t, from 0, to 3600, with an step increment of 10.

6. Rebalancing Schedule
The balancing takes place quarterly, on March 28, June 28, September 28 and December 28 at 0:00 AM UTC+8 respectively. Reblancing duration is 1 hour (3600 seconds) . The smoothed weight is calculated every 10 seconds.




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