The 1EX perpetual futures market is the most popular market on the cryptocurrency exchange. Therefore, it attracts many beginner traders. The mistake many beginners make is that they start trading perpetual futures even without trading experience in the 1EX spot market.

1EX perpetual futures are complex instruments that carry high risks when trading. Let's try together to figure out how perpetual futures are arranged.

What are perpetual futures?

From traditional futures to perpetual futures in that they do not have a specific closing date for the transaction. Traders can hold the position for as long as they want. Perpetual futures are traded based on the underlying price index. In other words, perpetual contracts are often traded at a price that is equal to or almost similar to the price in the spot markets.

Initial Margin and Maintenance Margin

Initial margin is the minimum amount a trader deposits to open a position. It supports the credit position and serves as collateral.

Example: a trader wants to buy 100 ETH. To do this, he deposits 10 ETH and uses x10 leverage.

Maintenance margin is the minimum amount of margin that a trader must have in his trading account in order for his position to remain open. If the balance falls below the level of the maintenance margin, then either a margin call occurs or the position is liquidated. Keep in mind that the maintenance margin is a dynamic value. Its size may vary depending on the market price of the assets that serve as collateral.

Liquidation in the 1EX Perpetual Futures Market

If the margin falls below the Maintenance Margin, the funds in the 1EX Futures Wallet may be liquidated. Liquidation on 1EX has several scenarios that depend on risk and leverage.

If any funds remain on the trading account after liquidation, the balance is returned to the user. If the balance is less than the liquidation amount, the exchange declares the user bankrupt.

To avoid additional fees when liquidating a position in the 1EX perpetual futures market, you must close the position before the liquidation price is reached. The second option is to fund your trading account.

Funding rate

Financing is regular payments between buyers and sellers. They depend on the level of the bet. If the rate is above zero, buyers pay sellers. If the rate is below zero, sellers pay buyers.

The financing rate consists of an interest rate and a premium. The premium varies depending on the difference in prices between the spot and futures markets.

Marking price and PnL

The mark price is an estimate of the real value of a contract compared to its trading price. The mark price is calculated to avoid unfair liquidation that can occur when the market is highly volatile.

The price index in the futures market 1EX is linked to the price of the asset in the spot market. The mark price reflects the true value of the perpetual futures. At 1EX, the mark price is based on a price index and a funding rate. It is also used in the calculation of “Unrealized PnL”.

PnL is a measure of comparison of profitability and loss, or a profit and loss statement. When a trader has a position open in the perpetual futures market, PnL is not implemented. This suggests that it changes in response to market movements. When closing positions, unrealized PnL becomes realized.

Realized PnL refers to the profit or loss after the position is closed. It has no direct relation to the price of marking. Unrealized PnL is a dynamic indicator that is the main driver of liquidation.