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Coin-Margined Perpetual Futures

JuCoin
  • Updated

A Coin-Margined Perpetual Futures Contract is a type of derivative contract where users trade using a base cryptocurrency (such as Bitcoin, Ethereum, etc.) as collateral and settlement currency. Unlike USDT-Margined Futures Contracts (settled in USDT), Coin-Margined Futures directly use digital currencies as the base unit for trading and profit/loss settlements. Therefore, the key feature of this contract is settlement in cryptocurrency with no expiration date, allowing investors to open or close positions at any time according to market fluctuations.

 

Key Features of Coin-Margined Perpetual Futures:

  • Cryptocurrency Settlement: Coin-Margined Futures use base cryptocurrencies (e.g., BTC, ETH) as the settlement unit. All profits, losses, and collateral are calculated and settled in digital currency.
  • Funding Fee Mechanism: Since perpetual futures have no expiration date, their price will align with the spot market price. To maintain this alignment, Coin-Margined Perpetual Futures adopt a funding fee mechanism, which settles the funding fee periodically, typically every 8 hours. The funding fee determines the capital flow between long and short positions to keep the futures price in sync with the spot price.
  • No Expiration Date: A key feature of Coin-Margined Perpetual Futures is the lack of an expiration date, meaning investors can hold their positions indefinitely until they choose to close them.
  • Leverage Trading: Coin-Margined Perpetual Futures often offer leveraged trading, allowing investors to control a larger market value with less capital, thus amplifying both potential profits and risks.

Advantages of Coin-Margined Perpetual Futures:

  • Ideal for Cryptocurrency Investors: For investors who already hold a substantial amount of base cryptocurrencies (e.g., BTC, ETH), Coin-Margined Perpetual Futures are an ideal option. They can directly use these digital currencies as collateral and settlement units without converting them into stablecoins (like USDT), saving on conversion costs.
  • Suitable for Miners and Long-Term Holders: Miners or long-term investors prefer Coin-Margined Futures because they can use the digital assets they’ve mined or held for the long term as collateral for trading, with profits and losses settled in digital currencies, making it easier for long-term asset accumulation.
  • Tightly Linked to Spot Market Prices: Since Coin-Margined Perpetual Futures are settled in cryptocurrencies, their prices usually follow the fluctuations of the spot market very closely. This makes arbitrage opportunities more accessible, and market trends more intuitive.
  • Lower Conversion Costs: By directly using base cryptocurrencies for trading, investors avoid the extra conversion costs of switching to stablecoins (like USDT), improving trading efficiency.
  • Leverage Effect: Coin-Margined Perpetual Futures allow investors to trade with leverage, using less capital to control a larger market value, thus increasing potential returns, though they must also bear the increased risks.

Risks of Coin-Margined Perpetual Futures:

  • High Volatility: Since profits and losses are based on cryptocurrency settlements, market price volatility directly impacts investors’ results. The risk is amplified, especially during times of market turbulence.
  • Impact of Funding Fees: The funding fees for Coin-Margined Perpetual Futures are settled every 8 hours, and fluctuations in the funding rate can affect an investor's profitability. For example, when there is a larger number of long positions, the funding rate might be higher, causing short position holders to pay more in funding fees, and vice versa.

Example: How to Trade Coin-Margined Perpetual Futures:

Let’s say you are a Bitcoin holder with 2 BTC, and you decide to trade Coin-Margined Perpetual Futures to potentially earn from market fluctuations.

  1. Select the Coin-Margined Futures: You choose to open a BTC/USDT Coin-Margined Perpetual Futures contract on the JuCoin platform.

  2. Open a Position: You can either go long (buy) or short (sell) BTC futures. For instance, if you predict that Bitcoin’s price will rise, you decide to go long on BTC. You use 1 BTC as collateral to open the position.

  3. Leverage to Amplify Trade Size: Suppose the platform offers 10x leverage, which means that with 1 BTC of collateral, you control a 10 BTC position. If the market price rises by 1%, you earn 10 times the profit, i.e., 10% (10 BTC * 1% price increase), corresponding to a profit of 1 BTC.

  4. Funding Fee Settlement: After 8 hours, the platform settles the funding fee. Let’s assume you owe a funding fee of 0.01 BTC, which will be deducted from your account balance.

  5. Close the Position and Settle Profit/Loss: When you believe the market has reached your target price, you decide to close the position. If Bitcoin’s price has risen, you will earn a profit (settled in BTC). If the price falls, you will face a loss.

Summary:

Coin-Margined Perpetual Futures settle in base cryptocurrencies (like BTC, ETH) rather than USDT, and unlike USDT-Margined Futures, they have no fixed expiration date, allowing for long-term holdings. With leverage, investors can amplify their profits in volatile markets, but it’s important to note the high volatility and impact of funding fees. These futures are particularly suitable for those who already hold significant amounts of cryptocurrency, including miners and long-term investors, as it simplifies trading and asset accumulation.