Overview

A Perpetual Swap is an innovative product invented by BitMEX. The Perpetual Contract is similar to a traditional Futures Contract, but has a few differences:

• There is no expiry or settlement (subject to the Early Settlement).
• Perpetual Contracts mimic a margin-based spot market and hence trade close to the underlying reference Index Price.
  • The Funding mechanism is used to tether contracts to their underlying spot price.
  • This is in contrast to a Futures Contract which may trade at significantly different prices due to basis.
• Each perpetual contract has its own details which can be found in its Contract Specifications. These details include:
  • Reference Index
  • Funding Rate
  • Maximum Leverage

Leverage

Perpetual contracts do not require traders to post 100% of collateral as margin, because of this you can trade with leverage of up to 100x on some of BitMEX’s contracts. Margin on BitMEX is denominated in Bitcoin and other cryptocurrencies, allowing traders to speculate on the future value of its products using only Bitcoin or other cryptocurrencies.

Payout

BitMEX offers perpetual contracts that have inverse, linear and quanto payouts. This document explains the key differences between these payouts, and some implications for traders.

The product suits traders who prefer to hold positions for a long time and do not want their positions to fluctuate in value due to large swings in basis.

List Of Contracts

You can view the full list of perpetual contracts currently available for trading on BitMEX Contract List.

Contract Summary

Payout Type	Inverse	Linear	Quanto
Example Symbol	XBTUSD	XBTUSDT	ETHUSD
Underlying	1/XBTUSD or USDXBT	XBTUSDT	ETHUSD
Multiplier	$1	0.000001 USDT	0.000001 XBT
Quote Currency	USD	USDT	USD
Margin & PNL Currency	XBT	USDT	XBT
XBT Value of 1 Contract	1/Price * $1	Multiplier * Price	-
USDT Value of 1 Contract	-	Multiplier * Price	-
USD Value of 1 Contract	$1	.BUSDT * USDT Value	.BXBT * XBT Value
XBT PNL of 1 Contract	(1/EntryPrice - 1/ExitPrice) * $1	-	(ExitPrice - EntryPrice) * Multiplier
USDT PNL of 1 Contract	-	(ExitPrice - EntryPrice) * Multiplier	-

What is a Quanto Contract?

A quanto is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some fixed rate. Our Quanto Perpetuals operate this way.

These contracts are designed to be easy to trade and understand, but keep in mind as you trade them that your underlying margin and PNL are in Bitcoin. You are still exposed to Bitcoin/USD price risk when trading Quanto Perpetuals, even though the underlying and quote currencies are not Bitcoin.

What is an Inverse Contract?

An inverse contract is worth a fixed amount of the quote currency. In the case of the XBTUSD perpetual, each contract is worth $1 of Bitcoin at any price. XBTUSD is an inverse contract because it is quoted as XBT/USD but the underlying is USD/XBT or 1 / (XBT/USD). It is quoted as an inverse to facilitate hedging US Dollar amounts while the spot market convention is to quote the number of US Dollars per Bitcoin.

This product is suitable for traders who want to go long or short US Dollars against Bitcoin.

What is a Linear Contract?

A linear payout is the simplest to describe, and is used for many swaps. The price of a linear contract is expressed as the price of the underlying against the base currency.

Mechanics of Perpetual Markets

When trading perpetual contracts, a trader needs to be aware of several mechanics of the futures market. The key components a trader needs to be aware of are:

1. Multiplier: How much is one contract worth? You can see this information under the Contract Specifications for each instrument.
2. Position Marking: Perpetual contracts are marked according to the Fair Price Marking method. The mark price determines Unrealised PNL and liquidations.
3. Initial and Maintenance Margin: These key margin levels determine how much leverage one can trade with and at what point liquidation occurs.
4. Funding: Any position in a perpetual swap that is open when Funding occurs (every 8 hours) will pay or receive funding.

Traders can observe the current funding rate for a contract on the bottom left hand side of the Trade tab under “Contract Details”. Similarly one can view this rate in the individual “Contract Specifications”. Historical rates are in the Funding History.

Funding

Funding occurs every 8 hours at 04:00 UTC, 12:00 UTC and 20:00 UTC. 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 = Mark Value * Funding Rate

Your Mark Value is irrespective of leverage. For example, if you hold 100 XBTUSD 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. See examples.

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 BitMEX consists of two instruments: a Base currency and a Quote currency. For example, on XBTUSD, the Base currency is XBT while the quote currency is USD. The Interest Rate is a function of interest rates between these two currencies:

Interest Rate (I) = (Interest Quote Index - Interest Base Index) / Funding Interval
where
  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)

Note: Under each Contract Specification page, the source borrow market is stated for each Interest Index.

Premium / Discount Component

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. Each contract’s Premium Index is available on the specific instrument’s Contract Specifications page and 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

To learn more about the Impact Bid Price and Impact Ask Price, please read Fair Price Marking.

Final Funding Rate Calculation

BitMEX calculates the Premium Index (P) and Interest Rate (I) every minute and then performs a 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 XBT Position Value to determine the Funding Amount to be paid or received at the Funding Timestamp.

Funding Rate Caps

BitMEX imposes caps on the Funding Rate to ensure the maximum leverage can still be utilized. To do this, two caps are imposed:

1. The absolute Funding Rate is capped at 75% of the Initial Margin - Maintenance Margin. If the Initial Margin is 1% and the Maintenance Margin is 0.5%, the maximum Funding Rate will be 75% * (1% - 0.5%)= 0.375%.
2. The Funding Rate may not change by more than 75% of the Maintenance Margin between Funding Intervals.

Funding Fees

BitMEX does not charge any fees on funding; it is exchanged directly peer-to-peer.

More Information

Further information and examples of trading the Perpetual Swap is available.

Further information and examples of funding calculations are available.