Academy Beginners Tutorial Article

V. USDT Delivery Contracts: Price Limits

2020.02.25

Price limit is one of the important risk management methods that protects investors and prevents the market from being manipulated. Without price limit, some traders can use small amount of capital and high leverage ratio to make the contract price fluctuate significantly, causing deficit for other users. On the other hand, if the price limit rule is too simple, it will lead to the lack of vitality in the market. Without premiums, there is no difference between spot trading and futures trading, defeating the purpose of the contract transaction.

First 10min of all newly listed futures: 
Upper limit = Index price x (1+5%) 
Lower limit = Index price x (1-5%)

After 10min:
Upper limit = Avg. premium/discount within last 10min + index price x (1+3%)
Lower limit = Avg. premium/discount within last 10min + index price x (1-3%)

Premium/discount = (Contract price – index price)

If the discount/premium calculated equals to 0, or deviates from the index price by 25%:
Upper limit=index price x (1+25%)
Lower limit=index price x (1-25%)

Open long or close short position: Order would be rejected if the order price sent is higher than the price limit,. 
Open short or close long position: Order would be blocked if the order price sent is lower than the price limit.

The above rules also apply to the liquidation price. For liquidation of short positions, if the liquidation price is higher than the higher limit, the system will place the buying orders at the Upper limit; for liquidation of long positions, if the liquidation price is lower than the lower limit price, the system will place the selling orders at lower limit.

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