Perpetual Contracts

Perpetual Contract is a financial derivatives product that has combined the advantages of both spot and futures trading. Perpetual Contract is trading the real-time prediction of the price of a particular asset. The following are four main aspects involved in a perpetual contract.

1. No Expiry Date nor Settlement

In contrast to spot trading which requires immediate settlement perpetual contracts do not have an expiry date nor any daily settlements. Also, unlike other futures contracts, perpetual contracts do not need to consider rollover costs and has the advantage of traders being able to manage their funds with flexibility. Furthermore, perpetual contract prices converge to spot market prices (AKA Mark Price) via funding rates. When trading, Traders should keep close attention to the funding fees that are being paid or received that occur every 8 hours.

2. Mark Price Anchor (Dual Price Model)

MCS uses a mechanism called 'Funding' to anchor MCS' market price with the prices of the spot market. Furthermore, leveraging the mark price, MCS uses the Dual Price Model which protects traders from unnecessary liquidations that occur due to market manipulation and ensure a fair trading environment. Market manipulation causes abnormal price fluctuations which may cause malicious liquidations on the traders’ positions and result in an unfair trading environment. The Mark Price on MCS can be regarded as the real-time average spot price in major spot exchanges that provides BTC/USDT pairs.

3. Up to 100:1 Leverage

MCS provides a up to 100x leverage to trade perpetual swaps. Unlike the spot margin trading or futures trading that respectively provides 3~5x or 5~20x leverage, MCS provides traders with greater flexibility in managing their portfolios. Therefore, with the ease of adjusting leverage and margin of an open position at any time, it allows high flexibility managing risk to maximize the trading experience.

4. Auto-Deleveraging (Contract Loss Mechanism) 

In the event of liquidation, a contract loss may occur when the position cannot be liquidated at a price that is better than the bankruptcy price. If the loss cannot be covered by the insurance fund, the system will automatically deleverage the opposite position that is the most profitable and highly leveraged to make up for the loss of the contract. The auto deleveraged trader's position will be matched with the bankruptcy price of the position with contract loss. This system only affects a few traders who are highly profitable and leveraged. Thus, this protects other low-risk traders from being a part of the system loss due to a single risky trader. Traders can lower their ranking by reducing their leverage or closing some of their positions.

Perpetual Contract Settlement Method - Inverse Contracts

Inverse Contract means that the particular derivative product is settled in its base currency, not the quote price.

MCS uses inverse trading pairs. Therefore, although it is displayed as BTC/USDT, the actual trading pair is in USDT/BTC. Therefore, the number of contracts that can be ordered depends on the current Bitcoin price and the profit and loss is also settled in BTC. Inverse contracts are used to ease the trading process because it does not require entry of decimal places (eg 0.00000123 BTC), and it is possible to purchase one contract and trade at as low as 1 USDT. This allows users to intuitively understand the market price without having to calculate the index unlike traditional futures contracts.

** Note: Vanilla products opposite to inverse contracts are often used in the spot markets, which the trading pairs are quoted directly where the asset that is being traded are denominated in their base currencies (Base currency : BTC when pair is BTC/USDT). The most common base currencies would be BTC or ETH where they are usually paired with quote currencies like USD or USDT. The profit and loss of a common trading pair described above is settled in the quote currency (USD or USDT) and is called a linear or vanilla derivative product.

<Inverse Example>

David is long 10,000 contracts when BTC = 5,000 USDT on MCS

David is actually selling 10,000 USDT and buying an equivalent amount of BTC of 2 BTC (10,000/5,000).

If David decides to close the longed 10,000 contracts when BTC = 10,000 USDT on MCS

Likewise, David is in fact buying back 10,000 USDT worth of contracts and selling the equivalent value of BTC of 1 BTC (10,000/10,000).

\begin{align}\small \textsf{Profit/Loss for the long position} &\small= \textsf{Entry Price of Quote Currency} - \textsf{Exit Price of Quote currency}\\&\small=\textsf{2 BTC - 1 BTC}\\&\small=\textsf{1 BTC}\end{align}

Perpetual Contracts Trading Rules

Traders can see MCS’ Perpetual Contracts Trading Rules through the table below.