Position Marking
Last Price
Important Terminologies
Liquidation
Leverage
Pnl Calculation
Overview
Benefits
Funding
Pnl Caluclation
Overview
What is a Derivative?
A derivative is a financial contract with a value that is derived from an underlying asset. Derivatives have no direct value in and of themselves — their value is based on the expected price movements of their underlying asset. When the underlying asset is a cryptocurrency like Bitcoin, they are termed as Cryptocurrency Derivatives. Trading Crypto derivatives doesn’t actually mean buying or selling cryptocurrencies. It provides an alternative path to get exposure to the underlying cryptocurrency.
Derivatives are often used as an instrument to manage financial risk at the expense of high returns for the other party.
There are mainly 4 types of Derivatives –
- Futures
- Forwards
- Options
- Swaps
What are futures?
Futures are contracts that facilitate the buying or selling of an underlying asset at a predetermined price at a future point in time. Counterparties are obligated to fulfil the terms of the contract, either buying or selling the asset at the decided price on the date of expiry. There are special types of futures which come with no expiration date. These futures are called
What are Cryptocurrency Futures?
The contracts are still settled at the predetermined price.
Crypto futures allow you to speculatively trade on the future prices of cryptocurrencies without owning the cryptocurrencies. When two parties enter into a crypto futures contract, they agree to buy/sell an asset or security at a pre-fixed price on a selected date in the future. The price of Cryptocurrency futures is directly proportional to the prices of the underlying cryptocurrencies. Users of CoinDCX can trade both Bitcoin and Altcoin futures on the platform.
Leverage:
Traders can enter positions that are larger than their account balance
Futures vs Margin Trading:
Cryptocurrency Futures are always superior to margin trading because futures provide:
More leverage:
Future contracts allow much higher leverage than the maximum leverage allowed in Margin trading. On CoinDCX, Cryptocurrency futures can be leveraged to as high as 15x whereas margin trading is capped to 5x.
More liquidity:
Margin trading market is a borrowing market which are hard to build, and as a result, have lower liquidity. Future markets are more liquid than spot markets since they are free of this limitation and are easy to develop.
No Cost of Interest:
The futures contract will either trade at a premium or discount. There are no costs of interest involved in holding the futures. In the case of margin trading, CoinDCX offers interest-free margin trading for first 1 hour and charges 0.05% per day thereafter.
CoinDCX – India’s first Cryptocurrency derivative exchange
CoinDCX is India’s first cryptocurrency derivative exchange which offers immense liquidity on its Bitcoin and Altcoin future products. CoinDCX allows its users to trade cryptocurrency futures with up to 20x leverage. Maximum leverage limit for every futures contract can be found under the contract details section on the trading terminal.
Future Trading on CoinDCX –
CoinDCX has future trading on Bitcoin and 8 leading Altcoins. These are Ether (ETH), XRP (XRP), Bitcoin Cash (BCH), Litecoin (LTC), Eos (EOS), Cardano (ADA), and Tron (TRX). Users can also trade perpetual future contracts with Bitcoin and Ethereum perpetual futures.
GETTING STARTED
Trading on CoinDCX is extremely simple. Signup or Login with your existing account on DCXfutures. CoinDCX offers the much needed versatility on your trading account. You don’t need to open a separate account to trade futures on DCXfutures. Once you have signed up, you will be required to deposit cryptocurrency in your exchange wallets which will act as your locked balance or your existing portfolio can also be used.Make your first trade on CoinDCX:
To place a trade, you need to:
- Select the contract you are interested in
- Recall that futures contracts on CoinDCX are margined and settled in either BTC or USDT. x If you are looking to trade a USDT settled contract, you could use the currency converter tool to change BTC to USDT.
- Specify the number of contracts that you are looking to buy/ sell
- Decide on the order type (e.g. limit or market) and place it
- Once an order is placed, it will immediately show up in ‘Open Orders’ tab in the Balances panel.On execution of the order you acquire a new ‘Open position’ which displayed in the Balances panel.
Position Marking
Last Price
Important Terminologies
Liquidation
Leverage
Pnl Calculation
GETTING STARTED
Position MarkingThe long and short positions on contracts are employed using the Last Price Marking method.
Last Price
Last price is the price at which the last trade has occurred right before the time of contract expiration. Last Price Marking ensures that the contract is settled closest to the spot market price. It minimizes the price discrepancy and ensures a fairer trading environment.
On CoinDCX’s platform, the liquidation of the contract is executed based on the last price. This choice brings more flexibility and power in the hands of the traders to adapt based on their risk tolerance and market conditions. We will consider a simple LTC-BTC Linear futures as an example to understand how futures work.
Important Terminologies
- Long Position: A buyer of futures contracts. A long position is the number of purchase contracts held by the buyer.
- Short Position: A seller of futures contracts. A short position is the number of sales contracts held by the seller.
- Underlying Currency: This is the cryptocurrency over which a Futures contract is defined. In our example the underlying is LTC.
- Quote currency: This is the currency in which the price of the underlying in quoted. In our example, the price of LTC is quoted in BTC terms. Hence, quote currency is BTC.
- Base currency/Settlement Currency: This is the currency in which the PnL of a Futures position is calculated. In our example, the base currency is the same as the quote currency, i.e. LTC. However, this need not always be true.
- Closing Price: The fair value price trading near the end of the trading session.
- Contract Size (m): The amount or quantity of the commodity or cryptocurrency represented by each futures contract.
- Contract Value: The current price of the futures contract multiplied by the contract size
- Basis: The differential between the current price of the cryptocurrency and its nearby futures price
- Locked Margin (L%): Locked Margin is the amount which you will lock in the exchange to open a leveraged position and keep trading position open. If the losses on your positions increases more than the Locked Margin, the exchange will liquidate your positions to recover the losses.
- PnL: PnL stands for profit and loss. When you have open positions on a futures market and it is susceptible to change based on market conditions, we call the PnL is unrealized. When you close your positions, the unrealized PnL becomes realized PnL (either partially or entirely).
Liquidation occurs when the value of the collateral falls below the Locked Margin.
Now, if you buy ‘n’ LTC-BTC future contracts, for a future price ‘f’, Then your overall position size = n*m*f
This means that the buyer of the Futures contract has agreed to buy n*m BTC at contract expiry, with each LTC priced at f BTC. Thus, at the time of settlement, he needs to have n*m*f BTC to complete the contract.
However, you don’t need to have resources equal to the position size to execute the contract. This is exactly where CoinDCX’s leverage feature kicks in:
Leverage Explained:
Leverage has the potential to multiply your trading returns We defined the Locked Margin (L%) above. So, in our example, to buy/ sell n LTC-BTC contracts, you need to have only:
n*m*L%*f (in BTC)
In your account, This also means that maximum position size that you can afford is 1/(L%) times the collateral (in USD) that you have available. To understand the potential, we will consider two scenarios for traders, one with leverage and one without leverage.
Suppose you have 7000 INR which can help you buy 0.01 BTC when the price of BTC is 7,00,000 INR. In a week, BTC’s price rises by 10% currently trading at 7,70,000 INR. Your Profit is Rs 700
No Leverage: RoI = 700/7000 = 10%
Leverage:
You deposit 7000 INR in the deposit margin.
Let’s assume the Locked Margin (L%) = 10% and the contract size is 0.01BTC. The number of contracts you can afford to buy = 1/10% = 10.
You bought 10 INR-BTC contracts.
PnL = 10*0.01*(7,70,000 – 7,00,000) = 7000 INR
ROI = 7000/7000 = 100%
Note – Leverage has multiplier effect on profits as well as losses. If your losses exceed the amount you have deposited in your Locked Margin account, the exchange will give you a margin call or will liquidate your positions to compensate the losses.
PnL Calculation for Futures:
Unrealised PnL For a long position in a Futures contract:
PnL = n*m*(Future Current Price – Future Entry Price) (in BTC) For a short position in a Futures contract:
PnL = -n*m*(Future Current Price – Future Entry Price) (in BTC
It is worth noting that your Unrealized profits and losses are adjusted from the locked margin you post. Profit on a Futures position adds to the Margin (Locked Balance). Conversely, loss is subtracted from the locked margin and you might need to top it up to continue holding your position.
Settlement price is determined at the maturity of the contract through a pre-defined method described in the contract specifications . All open positions at the time of contract maturity are closed at the settlement price.
Realised PnL – In case of Futures, PnL can be realised either by exiting the position in the market or via settlement process at the maturity of the contract
For a long position in a Futures contract:
PnL = n*m*(Future Current Price – Future Entry Price) (in BTC)
Exit long position via settlement: PnL = n*m*(Future Current Price – Future Entry Price) (in BTC)
Exit short position in market:
PnL = n*m*(Future Current Price – Future Entry Price) (in BTC)
Exit short position via settlement:
PnL = n*m*(Future Current Price – Future Entry Price) (in BTC)
Inverse Futures The Futures contract discussed above are also known as Vanilla Futures. Inverse Futures are similar to Vanilla Futures, but only with one key distinction: the relationship between Futures price and position PnL is inverted. For a long position in an inverse Futures contract: PnL = n*m*(Future Current Price – Future Entry Price) (in BTC) For a short position in an inverse Futures contract: PnL = n*m*(Future Current Price – Future Entry Price) (in BTC)
Overview
Benefits
Funding
Pnl Caluclation
Guide to Perpetual Contracts
Overview
Perpetual contracts are similar to futures but without any expiration date. However, the power to hold the contract forever comes at an expense. This expense is decided based on‘Funding’. Perpetual Contracts are marked according to the Last Price Marking method. The Last Price determines Unrealised PnL and liquidation prices.
Benefits of a perpetual contracts vs. futures
Since a futures contract has an expiry date, a trader looking to maintain his position will need to periodically roll to a next contract as the previous one expires. Perpetual contracts eliminate the need to roll positions. Perpetual contracts are an easy-to-go solution for regular traders.
The bases, i.e. the difference between the price of a futures and its underlying is higher compared to perpetuals. This exposes futures traders to basis risk.
Funding
Fundings are periodic payments exchanged between the buyer and seller every 8 hours. If the rate is positive, then longs will pay and shorts will receive the rate, and vice versa if the rate is negative. It brings the price of the perpetual contract back to the spot.
When the Funding Rate is positive (perpetual contract trades at a premium to spot), longs pay shorts. When it is negative (perpetual contract trades at discount to spot), shorts pay longs.
Note – You will only pay or receive funding if you hold a position at the Funding Timestamp.
Funding Timestamps: 09:30 IST, 17:30 IST and 1:30 IST.
Your position value is irrespective of leverage. For example, if you hold 100 BTC-USD contracts, funding is charged/received on the notional value of those contracts, and is not based on how much margin you have assigned to the position.
Funding Rate –
The Funding Rate is comprised of two main parts: the Interest Rate and the Premium / Discount. This rate aims to keep the traded price of the perpetual contract in line with the underlying reference price.
Interest Rate Component
Every contract consists of two instruments: a Base currency and a Quote currency. For example, on BTC-USD, the Base currency is BTC while the quote currency is USD. The Interest Rate is a function of interest rates between these two currencies:
Interest Rate (I) = (Interest Quote Index – Interest Base Index) / Funding Interval
where
Interest Base Index = The Interest Rate for borrowing the Base currency
Interest Quote Index = The Interest Rate for borrowing the Quote currency
Funding Interval = 3 (Since funding occurs every 8 hours)
Premium / Discount Component
The perpetual contract may trade at a significant premium or discount to the Last Price. In those situations, a Premium Index will be used to raise or lower the next Funding Rate to levels consistent with where the contract is trading. Each contract’s Premium Index is available on the specific instrument’s Contract Specifications page and is calculated as follows:
Note –
CoinDCX doesn’t charge any funding fees from its users. There is no interest rate on keeping the position open indefinitely in perpetuals. The payments are directly interchanged between the buyer and the seller.
PnL Calculation
In crypto derivatives, there are two types of PnLs, realized and unrealized. Particularly in perpetual contracts, When you have open positions and it is susceptible to change based on market conditions, we call the PnL is unrealized. When you close your positions, the unrealized PnL becomes realized PnL (either partially or entirely). Here we will discuss how the unrealized and realized PnLs are calculated:
Example 1, Buying and Selling
Perpetual Contracts
Suppose you are long 1,000 BTC-USD contracts with an average entry price of $1,000. The last price of BTC-USD is currently $1,250.
Your unrealised PnL is based on the difference between his average entry price and the current price.
Unrealised Profit = ($1/$1,000 – $1/$1,250) * 1,000 = 0.20 BTC
Now, the last price of BTC-USD is $1,500.
You decide to sell 500 BTCUSD contracts at $1,500 and realise some profit.
Your realised PnL is based on the difference between his average entry price and the price at which you sell BTC-USD contracts.
Realised Profit = ($1/1,000 – $1/$1,500) * 500 = 0.17 BTC
Realised PNL is based on where you can actually buy or sell your position, which in most cases is not the mark price. If Ram had sold his 500 contracts at the lost price of $1,250, he would have a realised profit of 0.10 BTC.
Example 2, Funding Fees
Suppose you are trading a BTC-USD perpetual contract. Every 8 hours, there is a funding fee. The funding fee is currently 1%, and is paid from buyers to sellers.
You currently long 100 BTC worth of BTC-USD contracts. The position has no realised PnL. It is funding time and you must pay 1 BTC (1% of 100BTC) to the seller. After the funding fee has been paid, your realised PnL is now -1 BTC.
If you are short 100 BTC worth of BTC-USD contracts instead,you will receive 1 BTC (from the buyer of your 100BTC). Your realised PnL will then be 1 BTC.
Examples
Long BTCUSD Perpetual Contract Example
The following examples do not take Premium into consideration.
Perpetual Contracts
Realised Profit = ($1/1,000 – $1/$1,500) * 500 = 0.17 BTC
Margin Currency = Bitcoin
Underlying Index = BTC OKEx Indices
Interest Quote Index = USD Lending Rate in the OKEx Indices (.USDBON)
Interest Base Index = BTC Lending Rate in the OKEx Indices (.BTCBON)
Funding Timestamp = 02:00 UTC, 10:00 UTC, and 18:00 UTC
Day 1, 08:00 UTC
You go Long on 150,000 BTC-USD Perpetual Contracts at a price of 7500 USD.
BTC Position Value = 150,000 Contracts * 1 USD * 1/7500 = 20 BTC
Day 1, 10:00 UTC
You hold the position over the Funding Timestamp at 10:00 UTC+00 and exchange the Funding Amount. The amount you pay is determined as below:
The BTCUSD spot price is currently 7500 USD.
Interest Quote Index = 1.00% per day
Interest Base Index = 0.25% per day
Funding Rate = (1.00% – 0.25%) / 3 = 0.25%
Funding Amount = Position Value * Funding Rate = 20 BTC * 0.25% = 0.05 BTC
The Funding Amount is positive, so you need to pay since you are Long, and your counterpart who is Short receives this 0.05 BTC.
Day 1, 16:00 UTC
The BTCUSD contract rises in price to 8000 USD. You close your position by selling the 150,000 BTCUSD contracts. Since you do this before the next Funding Timestamp at 18:00 UTC+00, you do not need to pay the Funding Amount at that time.
You made 1.25 BTC profit from the increase in the value of BTCUSD: PnL = 150,000 * 1 USD * (1/7500 – 1/8000) = 1.25 BTC
You exchanged 0.05 BTC in funding, and your total profit is 1.2 BTC (1.25 BTC – 0.05 BTC).
Trading Fees
All trading fees are accounted through realised PnL because realized PnL is the actual transaction taking place on the platform.Suppose you bought BTCUSD. The market has not moved. Your unrealised PnL is 0, but your realised PnL is negative. Your realised PnL is negative because you will be charged a small taker fee when you bought BTCUSD.
If you placed a passive limit order, you will be classified as a maker once the order was executed. As a maker, you will b paid a rebate on the trade. In that situation, your unrealised PnL would be 0 and realised PnL positive.
When the order is partially filled and the rest of the order is placed on the orderbook, the trader becomes maker and taker at the same time.
Dashboard Display
Realised PNL is displayed in different locations on the CoinDCX’s trading dashboard depending on whether you are merely reducing the size of an existing position, or closing it entirely. These orders are actually listed on OKex’s ledger but a trader’s personal realized PnLs and orders will be displayed on his/her CoinDCX dashboard- If you have an open position with an unrealised profit of 10 BTC, this amount will show on the Open Positions tab.
- If you completely close the same position and you realise a profit of 10 BTC, this 10 BTC will be shown on the Closed Positions tab.
- If you then create a new position on the same contract, realised PNL will be reset to 0 BTC on the Open Positions tab. Realised PNL resulting from a partial closure of this new position will be displayed on the Open Positions tab.
- If you then completely close this new position, any realised PNL will be added to that symbol on the Closed Positions tab.
