BigONE contract calculation formula

BigONE's meticulous contract calculation formula employs TWAP to ensure fair settlement prices, adjusting for leverage, and determining the liquidation and exercise prices, ensuring precision and risk management.

Nov 28, 2024 at 11:44 am

BigONE Contract Calculation Formula

BigONE, a leading cryptocurrency exchange, employs sophisticated calculation formulas to determine the value of its perpetual contracts. These formulas ensure precise pricing and fair settlement of trades. This article delves into the intricacies of BigONE's contract calculation formula, providing a step-by-step breakdown of the process.

Step 1: Determining the Index Price

The index price is the reference price against which the contract's value is calculated. BigONE employs an unbiased, stable index that is derived from multiple reliable market sources. The index price is continuously updated to reflect real-time market conditions, ensuring accurate contract valuations.

Step 2: Calculating the Funding Rate

The funding rate is a periodic fee paid between traders to ensure the contract price remains anchored to the index price. It is calculated based on the difference between the contract price and the index price. Positive funding rates indicate that long positions are funding short positions, while negative rates indicate the reverse.

Step 3: Applying the Time-Weighted Average Price (TWAP)

BigONE uses TWAP to calculate the average closing price of a contract over a specified period. This period is typically 24 hours or 8 hours, depending on the contract type. TWAP ensures a fair settlement price that minimizes the impact of sudden price fluctuations.

Step 4: Adjusting for Leverage

Traders can use leverage to amplify their trading profits, but it comes with increased risk. BigONE's contract calculation formula automatically adjusts for leverage. If a trader uses 5x leverage, their contract value is increased by a factor of 5.

Step 5: Computing the Contract Value

The contract value is the total value of a trader's position in a perpetual contract. It is calculated by multiplying the index price by the contract size and adjusting for leverage. The contract size is the number of underlying assets represented by each contract.

Step 6: Determining the Mark Price

The mark price is the current value of a contract based on the underlying asset's price. It is calculated using the same formula as the contract value but without adjusting for leverage. The mark price is used to calculate the realized profit or loss on a contract.

Step 7: Liquidation Logic

Liquidation occurs when a trader's margin balance falls below a certain threshold. BigONE's contract calculation formula determines the liquidation price, which is the contract price at which a trader's position is forcefully closed to protect the exchange from excessive risk.

Step 8: Exercising a Contract

When a contract expires, traders have the option to exercise it, which means buying or selling the underlying asset at the contract price. BigONE's calculation formula ensures that the settlement price accurately reflects the market value of the asset at the time of exercise.