Enable Futures Trading
- 1. Introduction to OKEx Futures
- OKEx Futures is a digital asset derivative product that is settled in digital assets such as Bitcoin (BTC) and Litecoin (LTC). Each contract has a Face Value of USD100-worth of BTC, or USD10-worth of another asset (e.g. LTC, ETH, etc.). Traders can long or short a position to profit from the increase or decline of a digital assets price, or manage their investment risks by hedging.
- In futures trading, traders only need to pay a small amount of margin according to the ratio of the contract position value (10x: 1/10; 20x: 1/20) to trade higher-value contracts. Traders can therefore make use of different tools to increase their profit, which involves greater risks.
|Underlying||BTC (or other assets, e.g. LTC)/USD Index|
|Contract multiplier||USD1 per point|
|Quotation unit||Index point|
|Expiration type||Weekly, bi-weekly, quarterly|
|Contract value||BTC: USD100; other assets, e.g. LTC: USD10|
|Minimum margin||10x: 1/10 of position value; 20x: 1/20 of position value|
|Contract delivery time||09:00, Friday of the expiry week (CET, UTC+1)|
|Settlement date||Same as delivery date|
|Settlement method||Settled by token|
- 2. Futures Margin
- Futures margin is a good-faith deposit, or an amount of capital one needs to post or deposit to control a futures contract.
- There are 2 margin modes available on OKEx: cross-margin and fixed-margin. In cross-margin mode, the position margin required varies with the price movements. In fixed-margin mode, the position margin remains the same even if the price fluctuates.
- 3. Definitions of Spot Index Price and Contracts Last Traded Price
- Spot index price is a token’s reasonable market price calculated by the spot price of multiple exchanges on the market. Contract’s last traded price is the trading price in the contract market. Usually the contract traded price will fluctuate around the spot index price with a certain price spread. The weekly, bi-weekly, and quarterly price might differ from the spot index price. However, because of the settlement mechanism, contract traded price will gradually come close to the spot index price.
- 4. Definition of Realized Profit and Loss (RPL), Unrealized Profit and Loss (UPL) and Profit
- Realized profit and loss (RPL): the profit/loss generated by closing a position before delivery or settlement.
- Unrealized profit and loss (UPL): the profit/loss generated by a position that has yet to be closed. All UPL will be settled and credited to user balance at settlement day (Friday of the expiry week). The UPL will then be reset.
- Profit: the sum of user’s settled profit and UPL since opening the position.
- 5. When will forced-liquidation be triggered?
- When trader’s margin ratio is lower than the forced-liquidation baseline, forced-liquidation will be triggered. The higher the leverage, the higher the risk of forced-liquidation.
- Margin ratio calculation:
- 1. Fixed-Margin Mode
- Margin Ratio = (Fixed Margin + UPL) / Initial Margin
- Initial Margin = Face Value * Number of Contracts / (Average Open Position Price * Leverage)
- 2. Cross-Margin Mode
- Margin Ratio = Equity / (Initial Margin + Withholding Margin of Working Orders)
- Initial Margin = Face Value * Number of Contracts / (Last Traded Price * Leverage)
- The forced-liquidation baseline for 10x leverage is 10%. When trader’s loss is greater or equals to 90% of the initial margin, forced-liquidation will be triggered.
- The forced-liquidation baseline for 20x leverage is 20%. When trader’s loss is greater or equals to 80% of the initial margin, forced-liquidation will be triggered.
- 6. Why forced-liquidation was triggered when the margin was not completely lost?
- For example, at 10x leverage, when the loss is greater than 90% of the position margin, forced-liquidation will be triggered.
- An early forced-liquidation engine is adopted to avoid cascade liquidation and margin call losses (positions that cannot be fulfilled after forced-liquidation). When user’s margin is lower than the required level, forced-liquidation will be triggered to take over the position. At this point, user’s forced-liquidation loss equals to the loss when margin ratio becomes 0. The engine will also take into account the current market situation to calculate a price at which the position can be traded immediately and then put the liquidated position into the market. If the actual transaction price of the liquidated position is higher than the bankruptcy price, the profit will be credited to the insurance fund to cover the loss caused by liquidation. (Bankruptcy price refers to the price at which a user loses all margin.)
- After forced-liquidation, the liquidated position will be separated from user’s account equity. If that position is not fully fulfilled, the loss will be counted as margin call loss for clawback. The original user will not suffer further loss from that position.
- 7. Why the profit cannot be transferred out immediately after position is closed?
- When contracts are settled at 09:00 every Friday (CET, UTC+1), we will calculate the system loss of the weekly, bi-weekly, andquarterly contracts that are not forced-liquidated. After that, profits can be transferred out.
- 8. Why is the UPL reset to 0 after settlement?
- In order to allow for the transfer of UPL of the bi-weekly, and quarterly contract before a position is closed, the system will transfer this week’s UPL to user’s account equity (cross-margin mode) / fixed margin (fixed-margin mode), and credit the relevant amount from this settlement to the RPL at 09:00 every Friday (CET, UTC+1). When the settlement is complete, the UPL will be reset and calculated according to the new settlement price.
1. Is it true that forced-liquidation will only be triggered when the trader has lost all margin?
2. For traders who use a 10x and 20x leverage, when their loss is higher than ( ) and ( ) of the open position margin, forced-liquidation will be triggered.
3. Let’s say the current price of 1 BTC is USD1,000. A trader spends USD1,000 to buy 1 BTC for margin and use a 10x leverage to short 100 BTC futures contract ([email protected]). When the market price rises 5% to USD1,050/ 1 BTC, and the trader’s position is forced-closed. How much has he lost on fiat value?
4. Where do the losses of traders’ forced-liquidation (margin call) go?
5. What is insurance fund used for?
6. When can I transfer out the profit after the contract is closed?
7. Why is the UPL of the original bi-weekly/quarterly contract reset to 0 after the settlement?
8. It is true that users have to clearly understand and be willing to accept the risks associated with the volatility in digital assets market, excessive leverage level, infrastructure malfunctions that affect the platform’s operation, and user’s mismaneuvers that cause investment losses?
Congratulations, you have passed the quiz, you may now enable futures trading