How does BingX perpetual contract work?

Perpetual contracts offer a way for traders to speculate on crypto prices without owning the assets themselves, providing the potential for high leverage but also conllevate significant risks.

Nov 23, 2024 at 11:27 pm

Step 1: Understanding Perpetual Contracts

Perpetual contracts are a type of financial derivative that allows traders to speculate on the future price of an underlying asset, such as Bitcoin or Ethereum, without owning the asset itself. They are similar to futures contracts, but they do not have an expiration date, allowing traders to hold their positions indefinitely.

BingX offers perpetual contracts on various cryptocurrencies, including BTC, ETH, XRP, and many others. These contracts offer up to 100x leverage, allowing traders to amplify their profits or losses. However, it's crucial to note that leverage is a double-edged sword, and traders must exercise caution when using it.

Step 2: Funding Rates and Mark Price

One unique aspect of perpetual contracts is the concept of funding rates and mark price. The funding rate is a periodic payment that is paid or received by traders depending on the difference between the perpetual contract price and the spot price of the underlying asset. The mark price is a reference price that is used to calculate the funding rate and to determine whether traders are in profit or loss.

If the perpetual contract price is trading above the spot price, traders with long positions (betting on the price going up) will pay funding to traders with short positions (betting on the price going down). This mechanism ensures that the perpetual contract price remains closely aligned with the spot price.

Step 3: Trading Interface and Order Types

The BingX trading interface for perpetual contracts is user-friendly and offers a range of order types for traders to choose from. Market orders execute immediately at the best available price, while limit orders allow traders to specify the desired price at which they want to buy or sell.

Stop orders, such as stop-loss orders and take-profit orders, can be used to manage risk and protect profits. Stop-loss orders automatically sell a position if the price falls below a predetermined level, while take-profit orders automatically sell a position if the price rises above a predetermined level.

Step 4: Risk Management and Liquidations

Perpetual contracts come with inherent risks due to the use of leverage. Traders must employ sound risk management strategies to minimize their losses. These strategies include:

• Setting stop-loss orders to limit losses
• Monitoring margin levels and adding funds when necessary
• Using position sizing techniques to avoid overexposure
• Understanding the concept of liquidation and taking steps to avoid it

Liquidation occurs when a trader's margin falls below a certain level. In such cases, the exchange will automatically close out the trader's position at the current market price, potentially resulting in significant losses.

Step 5: Fees and Margin Calculations

BingX charges a competitive fee structure for perpetual contracts. Fees include trading fees, funding fees, and withdrawal fees. Traders should familiarize themselves with these fees before entering into trades.

Margin is the amount of collateral that traders need to hold in their account to maintain their perpetual contract positions. Margin requirements vary depending on the contract and the amount of leverage used. Traders can calculate their margin requirements using the following formula:

Margin required = Position size / (Entry price * Leverage)