What is the difference between OKEx perpetual contracts and leverage trading?

OKEx Perpetual Contracts and Leverage Trading differ in contract type, leverage options, funding rates, interest charges, and liquidation risk, making it essential for traders to understand these differences to optimize their trading strategies.

Dec 16, 2024 at 11:33 am

What is the Difference Between OKEx Perpetual Contracts and Leverage Trading?

OKEx offers two distinct derivatives trading products: perpetual contracts and leverage trading. While both products allow traders to leverage their positions to amplify potential returns, they differ significantly in several key aspects. Understanding these differences is crucial for traders seeking to optimize their trading strategies.

OKEx Perpetual Contracts

1. Definition: OKEx perpetual contracts are perpetual futures contracts that never expire. They replicate the value of an underlying asset, such as Bitcoin or Ethereum, and facilitate continuous trading without settlement dates.
2. Margin Requirements: Perpetual contracts require traders to maintain a minimum margin, which acts as collateral and mitigates potential losses. The margin requirement varies depending on the underlying asset and the leverage chosen.
3. Leverage: Perpetual contracts offer fixed leverage options, ranging from 10x to 125x. Leverage multiplies the trader's capital, allowing them to control a larger position size than their account balance. However, higher leverage increases the risk of losses.
4. Funding Rate: Perpetual contracts employ a funding mechanism to ensure price convergence with the spot market. Funding occurs every eight hours and involves traders paying or receiving a small fee to adjust positions. This mechanism encourages traders to keep the perpetual contract price aligned with the spot price.

OKEx Leverage Trading

1. Definition: Leverage trading, also known as margin trading, involves borrowing funds from the exchange to increase the size of a trade. Traders can leverage their capital up to 10x, allowing them to gain exposure to larger market opportunities.
2. Margin Requirements: Leverage trading requires traders to deposit a margin, which acts as collateral. The margin amount is typically a percentage of the total trade value and varies depending on the leverage chosen.
3. Repayment and Interest: Leveraged positions must be closed and repaid within a specified timeframe, usually 24 hours. Interest is charged on the borrowed funds during the trading period.
4. Liquidation: If a leveraged position incurs losses that exceed the trader's margin, it may be liquidated by the exchange to limit further losses. The trader will lose the initial margin invested in the trade.

Key Differences Between Perpetual Contracts and Leverage Trading

1. Type of Contract: Perpetual contracts are perpetual futures, meaning they do not have an expiration date. Leverage trading involves borrowing funds to increase the size of a spot trade, which must be closed within a specified timeframe.
2. Leverage Options: Perpetual contracts offer fixed leverage options ranging from 10x to 125x. Leverage trading on OKEx allows leverage up to 10x.
3. Funding Rate: Perpetual contracts incorporate a funding mechanism to align contract prices with the spot market. Leverage trading does not involve such a funding mechanism.
4. Interest Charges: Leveraged trading positions incur interest charges on the borrowed funds. Perpetual contracts do not involve interest charges.
5. Liquidation Risk: Leveraged positions face the risk of liquidation if losses exceed the deposited margin. Perpetual contracts do not have such a risk unless the trader chooses to use leverage.