How to read DigiFinex contract rates

Understanding contract rates on DigiFinex is crucial for traders to determine the profitability and risks associated with futures contracts.

Nov 25, 2024 at 04:54 pm

How to Read DigiFinex Contract Rates

This comprehensive guide will provide step-by-step instructions on how to understand and interpret the contract rates displayed on the DigiFinex trading platform. Whether you're a seasoned trader or new to the world of crypto derivatives, this guide will empower you to navigate the DigiFinex contract market with confidence.

Step 1: Understanding the Basics of Contract Rates

• What is a contract rate? A contract rate is the current price at which a particular futures contract is trading. It represents the value of the underlying asset at the time of the contract's creation.
• What is a futures contract? A futures contract is an agreement to buy or sell a certain amount of an asset at a predetermined price on a specified future date.
• Why are contract rates important? Contract rates determine the potential profit or loss for traders who enter into futures contracts.

Step 2: Navigating DigiFinex's Contract Market

• Locate the contract market: Go to the "Contracts" section on the DigiFinex website or mobile app.
• Select the desired contract: Choose the contract that corresponds to the asset and expiration date you're interested in.
• View the contract details: Click on the contract to display a detailed page, including the current contract rate, order book, and historical data.

Step 3: Interpreting Contract Rates

• Current rate: This is the price at which the contract is currently trading. It fluctuates based on supply and demand.
• Index price: The index price represents the spot price of the underlying asset, which is used as a reference point for contract pricing.
• Funding rate: The funding rate is a periodic payment made between traders holding long and short positions. It maintains the contract price closely aligned with the spot price.
• Mark price: The mark price is a weighted average of recent trades and is used for calculating the funding rate and liquidation price.
• Liquidation price: The liquidation price is the point at which a trader's position is automatically closed due to insufficient margin.

Step 4: Factors Influencing Contract Rates

• Spot price of the underlying asset: The spot price has a direct impact on the contract rate, as futures contracts are tied to the value of the underlying asset.
• Supply and demand: Fluctuations in the number of buyers and sellers affect the contract rate, pushing it higher or lower.
• Funding cost: Positive funding rates favor long positions, while negative rates favor short positions, influencing the price movement.
• Market sentiment: Market sentiment, such as optimism or pessimism, can influence contract rates, leading to price shifts.
• News and events: Economic news and other events can impact the spot price, which, in turn, affects contract rates.

Step 5: Practicing Contract Rate Analysis

• Monitor the contract chart: Analyze the historical price movements of the contract to identify trends and patterns.
• Compare rates with the index price: Understand the relationship between the contract rate and the spot price, which provides insights into market conditions.
• Consider funding cost: Pay attention to the funding cost, as it can significantly impact the profitability of long or short positions.
• Stay informed about market news: Follow the latest news and developments in the crypto market to stay up-to-date on potential factors that may affect contract rates.
• Use limit orders: Limit orders allow you to specify the price at which you want to buy or sell a contract, offering greater control over your trades.