How does the Poloniex perpetual contract operate?

Perpetual contracts on Poloniex offer exposure to underlying assets without expiry dates, allowing traders to speculate on future prices by leveraging their trades and offsetting risk.

Nov 27, 2024 at 08:52 am

How does perpetual contracts work on Poloniex?

1. Overview of Perpetual Contracts on Poloniex

• Perpetual contracts on Poloniex are perpetual settlement contracts that offer exposure to the underlying asset without an expiry date. Traders use them to speculate on the future price of an underlying asset, such as USDT, Bitcoin (BTC), or Ethereum (ETH), without actually owning the asset. These contracts are widely used by traders to leverage their trades and hedge their positions.
• One of the most important aspects of perpetual contracts is the concept of funding rates. Funding rates ensure that the perpetual contract price remains close to the underlying index price. The funding rate is typically paid by traders on the long or short side, depending on whether the contract price remains higher or lower than the underlying index price.

2. Opening a Perpetual Contract on Poloniex

• Go to the Poloniex website and log in to your trading account.
• Click on the "Perpetuals" tab at the top of the screen.
• Choose the perpetual contract you want to trade and click on it.
• Enter the contract amount, which signifies the size of your trade.

3. Adjusting Your Trade

• After you have opened your perpetual trade, you can manage it using various options on the trading interface:

  • Take Profit: This option allows you to set a target price at which you want your trade to close automatically, locking in profits when the contract price reaches your specified level.
  • Stop Loss: This feature allows you to set a maximum loss level and closes the trade automatically if the price moves against your position, mitigating potential losses.

4. Funding Rate Calculation

• Funding rates on Poloniex are calculated on a specific period, typically 8 hours for most contracts, and are denoted by the next time point which can be found in the Poloniex UI, such as "16:00".
• The funding rate formula is: Funding Rate = (Premium Index - Mark Price) * Funding Rate Weight.
• Premium Index: The latest spot index price on a major crypto exchange.
• Mark Price: The spot price on Poloniex.
• Funding Rate Weight is based on the trade volume and is estimated every 15 seconds and fixed for the next 15 seconds, always rounding up to the nearest tick.

5. Funding rate payment

• Funding is paid at the settled funding time, if the resulting funding rate is greater than zero then traders with short positions will pay long traders, and if it is less than zero then long traders will pay short traders.
• The individual funding amount is: Funding = Contract Position * Funding Rate

6. Settlement

• As perpetual contracts do not have an expiry date, Poloniex settles perpetual contracts according to different market conditions.
• Under normal market conditions, perpetual contracts are settled in a virtual manner by marking all contracts to a reference index price at a specific point in time such as 08:50 every day. The reference index price is the aggregated information from several trusted exchanges in the industry, without the need for any physical delivery of the underlying asset.
• In extremely abnormal market conditions, Poloniex reserves the right to engage in physical settlement to limit losses. This involves acquiring and selling the underlying asset to close out all the open positions in the contract.