BitMart contract calculation formula

BitMart leverages a precise formula to calculate its contract prices, considering elements like index price, funding rate, insurance fund, mark price, and premium/discount, ensuring transparent and reliable contract valuations.

Nov 24, 2024 at 09:13 am

BitMart Contract Calculation Formula: A Comprehensive Guide

BitMart, a leading cryptocurrency exchange, offers a robust platform for users to trade various digital assets, including perpetual contracts. These contracts are financial instruments that allow traders to speculate on the future price of an underlying asset, such as Bitcoin or Ethereum. To ensure transparent and accurate calculations of contract prices, BitMart employs a specific formula that helps determine the value of these contracts. This article will delve into the details of the BitMart contract calculation formula, providing a comprehensive understanding of its components and methodologies.

Understanding the BitMart Contract Calculation Formula

The BitMart contract calculation formula consists of several key elements that play a crucial role in determining the contract price. These elements include:

• Index Price: This is the reference price used to determine the current value of the underlying asset. BitMart derives the index price from a combination of reputable sources, such as leading exchanges and liquidity providers.
• Funding Rate: The funding rate is a periodic payment made between contract holders, either positive or negative, designed to keep the contract price aligned with the index price.
• Insurance Fund: The insurance fund is a buffer that protects against extreme price fluctuations and potential losses for contract holders. It is funded by a portion of the trading fees generated on the platform.
• Mark Price: The mark price is a dynamic value that represents the fair value of the contract, taking into account the current market conditions and the funding rate.
• Premium/Discount: The premium or discount is the difference between the contract price and the index price. It reflects the market sentiment towards the underlying asset, indicating whether it is overvalued or undervalued.

Step-by-Step Calculation Process

The BitMart contract calculation formula involves a series of steps to determine the contract price:

1. Obtain the Index Price: BitMart sources the index price from multiple reputable sources to ensure accuracy and reliability. The exchange gathers data from leading exchanges, liquidity providers, and other market participants.
2. Calculate the Funding Rate: The funding rate is determined based on the difference between the contract price and the index price. When the contract price is higher than the index price, the funding rate is positive, and contract holders pay a fee to those holding the opposite position. Conversely, when the contract price is lower than the index price, the funding rate is negative, and contract holders receive a payment.
3. Adjust for the Insurance Fund: The insurance fund acts as a buffer to protect against extreme price fluctuations. A portion of the trading fees is allocated to the insurance fund, providing a layer of security for contract holders.
4. Determine the Mark Price: The mark price is calculated using a weighted average of the previous funding rates and the index price. It represents the fair value of the contract, taking into account the current market conditions and the funding rate.
5. Calculate the Premium/Discount: The premium or discount is the difference between the contract price and the index price. A positive premium indicates that the contract price is higher than the index price, while a negative discount indicates that the contract price is lower.
6. Update the Contract Price: The contract price is continuously updated based on the changes in the index price, funding rate, and premium/discount. The exchange uses these values to adjust the contract price in real-time, ensuring that it accurately reflects the market conditions.