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An Introduction to Cryptocurrency Futures

2019.11.11 OKEx Academy

What are Futures Contracts?

Futures contract is an agreement to trade a particular commodity or financial instrument at a predetermined price at a specified time in the future.

In a futures contract, both counter-parties have their obligations and rights.

For example: Both counter-parties agree on 10 contracts of the delivery of soybean at the price $5000. Then the buyer has an obligation and right to buy 10 tons of soybean at the price $5000 on a specific date. At the same time, the seller has an obligation and right to sell 10 tons of soybean at the price $5000 on the same date. The contract that represents the obligations and rights of both counter-parties is a futures contract.

But most of the time, investors do not ask for physical delivery. Instead, before the contract expires, which is also prior to the delivery day, investors will close the position to profit from the the price difference.

How to Trade Futures Contracts?

1. According to the BTC price movement, user may choose to open long or short position of different delivery dates. 

Currently, OKEx supports weekly, bi-weekly and quarterly contracts.Weekly contracts will be settled on the imminent Friday.Bi-weekly contracts will be settled on next Friday.Quarterly contracts will be settled on the last Friday of March, June, September and December.

2. Enter the Quantity and Price. 

When creating an order, the margin required is the value of the filled contract in BTC equivalent divided by the leverage multiplier. Order can only be placed when the account equity balance is larger than or equal to the margin.

3. Margin

When creating a new futures account, user will have to choose the margin mode before trading. Different margin modes have different margin formulae and risk management systems. User may switch the margin mode when he/she does not have any opened position and order (margin of all contract = zero).

In cross-margin mode, the risks and profits of all holding positions will be shared together. Under this mode, the minimum margin ratio for opening a position is 100%.

In fixed-margin mode, the margins and profits of each position will be isolated. User can only open a position when the equity balance is larger than the initial margin. However, the initial margin for each contract might be different.

4. Once the order is filled, user will hold the respective positions (long or short). 

In cross-margin mode, the equity balance of futures account has to be larger than 10% of the holding positions for 10x leverage contracts; 20% for 20x leverage contracts. In fixed-margin mode, the UPL varies based on the latest market price, but the margin remains the same as initial margin. Once the margin ratio drops to or below 10% (10x) / 20% (20x), our system will take over and force-liquidate the position(s).

5. Position

User may open more or close position(s) anytime to take profit / stop loss.

6. Realized profit & loss

On the delivery day, all opened positions will be closed at market price(USD). The profit / loss will be transferred to the futures account under "Realized profit & loss".

7. Delivery

After delivery, the societal losses will be covered proportionally by the accounts with realised profits from the same contract.

8. Transferred

After settlement, all realized profit and loss will be transferred to the equity balance.

9. Ending

The existing contract ends. New contracts will be launched.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.