Bitflex Perpetual Swaps - Predict Future Crypto Price Movements With
Perpetual swaps are a type of derivatives that can protect traders from the risks and volatility of the market
Perps have no expiration and no settlement date, rather, it employs a price anchoring system called the funding rate mechanism
Bitflex is one of the exchanges offering perpetual swaps/perpetual futures trading
Bitflex offers zero-trading fees for perpetual swaps traders during its BETA phase with opportunities to earn other rewards
The cryptocurrency market is evolving at an impressive pace. It is encouraging to see that crypto derivatives are becoming easily available, especially when you consider the fact that they can be incredibly helpful in a volatile market. Perpetual Swaps, for instance, are great for risk-averse traders and those who hope to build leverage.
If you are new to cryptocurrency derivatives, you may know little or nothing about perpetual swaps and how useful they can be. Here, we will discuss the most important things you need to know about perpetual swaps as well as what makes Bitflex stand out in the increasingly crowded crypto futures market.
First Things First – What Are Derivatives?
To truly understand what perpetual swaps are and the roles they can play, you first need to understand what are derivatives. In today's financial markets, a derivative refers to a type of security that derives its value from an underlying asset or group of assets.
Derivatives are commonly used to speculate on the future direction of the market. They function in such a way that they pay out, even when the market turns for the worst. Due to their inherent characteristics, derivatives are used by investors to hedge against risks.
There are different types of derivatives. In the cryptocurrency universe, the recognized types of derivatives include swaps, futures, forwards, options, and perpetual futures/perpetual swaps. They can all help in limiting losses in an event of a market crash.
What Are Perpetual Swaps?
In simple terms, a perpetual swap is a no-expiry contract between buyer and seller to trade an asset at an unspecified point in the future. Also called perpetual futures, these contracts do not expire, and they do not have a specific settlement date.
Within the crypto market, perpetual swaps were reportedly invented by BitMEX and were called the Gift of God. While perps (as they are also called) are typically available on native exchanges, their implementation varies widely from exchange to exchange. A perp listed in Bitflex, for instance, could be different from another one listed on FTX.
While perpetual swaps are similar to spot trading instruments on the peripheral level, they are often termed synthetic. They are not tied to physical exchange, but they allow holders to have leverage. The prices of perps are also anchored on the spot prices of their underlying assets. This is basically why exchanges implement a price anchoring system called the funding rate mechanism.
Before moving on from this section, it is important to state the difference between perpetual swaps/perpetual futures and ordinary futures. While futures have expiration dates, perpetual futures or perpetual swaps do not have expiration or settlement date.
How Do Perpetual Swaps Work?
Technically, perpetual swaps are different from all other types of derivatives. To understand how they work, you need to be familiar with the four major concepts that define the mechanism in which they work, namely Mark Price, Index Price, Margin, and Funding Rate.
The Mark Price of a perpetual swap is defined by the trading price of the perp on its exchange. It defines the real value of the perp and can be used in calculating profit and loss and also trigger liquidation when the time comes for that.
The Index Price of a perpetual swap defines the value of its underlying asset. This value is ideally determined by the trading price of the asset from external exchanges.
Margin in perpetual swaps defines the collateral traders are required to put down when they want to open a leveraged position.
Funding rates in perpetual swaps are used to tie the price of the perp to the spot price of the underlying asset at the time of the trade. It is considered highly important because perps have no expiration date and the spot price is always changing.
A perp is worth the same as the underlying asset when the mark price and the index price are the same. When there is a difference in the two values, the funding rate is used to balance things out. In situations where the market moves against the trade, the loss is deducted from the margin. When a trader's margin balance becomes too low, such trader is liquidated and his/her position is closed automatically.
The funding rate is often used to incentivize traders and keep the market active. When the number of buyers exceeds the number of sellers, the funding rate incentivizes sellers. When the reverse is the case, the funding rate incentives buyers. The goal is always to balance things out.
Another simple way to understand how the funding rate works is to consider who pays who in different scenarios. When the funding rate is positive, the longs (buyers) pay the shorts (sellers). A negative funding rate, on the other hand, means that the shorts pay the longs. The system functions in a manner that brings the price of perps back to the spot prices of their respective underlying assets.
Why Trade Perpetual Swaps Over Spot?
Trading perpetual swaps obviously appear tougher or more complicated than trading spots. Why then should you choose to trade perps over spot? Well, there are some benefits you can derive and we will highlight the most important ones below:
Perpetual swaps can yield profit with minimal risks
Perps can be used to build leverage – traders can open positions that are over 100x higher than their collateral
Perpetual swaps help traders benefit from cryptocurrencies without buying the actual cryptocurrency
Perps help traders hedge against daily price movements and the high volatility that bedevil the crypto market
Perps protect traders from impermanent loss
Bitflex Perpetual Swaps
From all we’ve discussed so far, you can tell that trading perpetual swaps can be profitable. The best part is that it is considerably safer than day trading digital assets on the spot market. But it is still important that you trade a safe exchange.
There are a number of crypto exchanges that support perpetual swaps – Bitflex is one of them. There are many reasons to choose Bitflex for perpetual swaps and other available assets. The exchange prides itself as the exchange that ultimately puts control back into the hands of traders. It achieves this while maintaining a scalable and secure network.
Bitflex is working hard to become one of the top spots for perpetual swaps in the crypto space. The team is building a robust infrastructure that will support traders and allow them to trade with confidence. It has a superb user interface that guarantees a seamless trading experience. It also employs institutional-grade security.
Bitflex is also dedicated to keeping the exchange platform safe and risk-free. It utilizes a unique policy for both storage and digital assets in transit.
For many people, this will be one of the biggest motivating factors to start trading perpetual swaps on Bitflex. The exchange is eager to help traders enjoy the full dividends of trading perpetual swaps and has offered zero trading fees during its BETA phase.
While Bitflex hopes to build a large perpetual swaps trading community by offering zero-trading fees during its BETA phase, the goal is also to get users involved in creating the highest quality standards. In addition to enjoying zero trading fees, Bitflex perpetual swaps traders will get the opportunity to participate in different campaigns with lucrative rewards.
The crypto derivatives market is still at an early stage of adoption, and it is interesting that exchanges like Bitflex are offering traders incentives to get started. We expect that the market segment will experience exponential growth very soon, and traders who embrace Bitflex perpetual swaps may enjoy the most benefits.
While perpetual swaps add something new and exciting to the crypto derivative segment, they shouldn't be seen as a foolproof way to make money from the crypto market. It offers advantages and benefits quite alright, but traders need to understand the market before venturing in. We've discussed some of the most important things you need to know and hope this helps you make an informed decision about Bitflex perpetual swaps.
Next: no more.