The Ethereum (ETH) derivative is in the form of a swap contract. There are mechanisms that keep the price aligned with the reference Index Price which is the ETHXBT exchange rate on Poloniex. As such this contract allows traders to speculate on the current value of the exchange rate. Traders need not have Ethereum to trade the swap as it only requires Bitcoin as margin.
Note that this currency is sometimes referred to as “Ether” and should not be confused with EtherCoin, which is a different coin.
The ETH swaps’ underlying is the ETH/XBT exchange rate on Poloniex as recorded in the .ETHXBT Index. The swaps are quoted in Bitcoin and all margin and PNL calculations are denominated in Bitcoin.
|XBT Contract Value||Multiplier * Futures Price * 1 ETH|
|USD Contract Value||XBT Contract Value * XBTUSD|
|PnL Calculation||# Contracts * Multipler * (Exit Price - Entry Price)|
Traders who think that the price of ETH will rise will buy the swap contract. Conversely, traders who believe the price will drop will sell the swap contract.
All margin is posted in Bitcoin, that means traders can go long or short this contract using only Bitcoin. The ETH swap contract features a leverage of up to 33x.
For example, to buy 33 Bitcoin worth of contracts, you will only require 1 Bitcoin of Initial Margin.
As this product is in the form a swap contract, there is no settlement. Note that since this product is a swap contract, funding occurs every 8 hours. Please see the Funding Section in the Swaps Guide for further information how this is calculated.
A trader wants to goes long 33 XBT of ETH swap contracts. ETHXBT (the Ethereum swap contract) trades at 0.0200 XBT. As the leverage is 33x, the trader only needs 1 XBT of margin for this trade.
The trader must buy 1,650 contracts: 33 XBT / (0.0200 XBT * 1).
A few days later, the price rises to 0.025 XBT and the trader sells all their contracts.
The trader’s profit will be: 1,650 * 1 * (0.025 - 0.020) = 8.25 XBT