Perpetual Futures Overview
Gate perpetual futures is a derivative used to invest in cryptocurrency, similar to traditional futures. The biggest difference is that perpetual futures has no expiration or settlement date, allowing users to buy (go long) or sell (go short) with greater convenience. Additionally, it offers higher leverage. Gate currently supports USDT perpetual and BTC perpetual contracts.
Trading Mode
Gate offers two trading modes: live trading and demo trading.
Live trading is a real trading mode where users must use actual funds from their accounts to trade. In live trading, users are required to pay actual trading fees and funding, and profits and losses will be directly reflected in the account balance. Live trading carries higher risks, so it is recommended that novice users fully understand and familiarize themselves with the trading rules before engaging in live trading.
Demo trading allows users to experience the functions of perpetual futures using simulated funds in a demo trading mode. The trading interface and operations are consistent with live trading, but it is labeled as “Testnet”. No actual fees are charged during demo trading, and the funds used are provided by the platform, allowing users to transfer up to 0.1 BTC or 3,000 USDT daily without affecting their real account assets. Additionally, the balance in the demo trading futures account cannot be transferred to the spot account.
Contract Types
Contract types can be categorized based on the duration into perpetual contracts and delivery contracts.
Based on the settlement currency, contracts can be divided into USDT-margined (USDT-M) perpetual contracts and BTC-margined (BTC-M) perpetual contracts.
Basic Trading Terms
In trading, you can choose to go long (buy) if you are bullish, and you will make a profit when the market rises, otherwise you will lose money. The opposite is true for going short (sell). The following are some basic terms of futures trading.
Leverage in futures trading allows for larger trades with the same principal and can magnify gains and losses.
Margin
Margin refers to the principle that you need when participating in futures trading and opening a position.
Position Margin = Initial Position Margin + User-Adjusted Margin.
In isolated margin mode, you can increase or decrease the position margin, but it cannot be lower than the initial margin required for the position.
Initial margin is the minimum margin required to open a position.
Position Initial Margin = ( Position Value / Leverage ) + Exit Fee
Maintenance margin refers to the minimum amount required to maintain an existing position.
Position Maintenance Margin = Position Value x Maintenance Margin Level + Exit Fee
The maintenance margin amount is affected by the position value and maintenance margin level, and the maintenance margin level is associated with the risk limit.
Maintenance margin level can be viewed on Contract Details page.
Mark Price
Mark price is based on the weighed price of the external market, plus a decaying funding basis rate over time. Gate uses the mark price to determine liquidations rather than the intraday trading price. Using the mark price helps prevent malicious market manipulation that could lead to unnecessary liquidations, while also helping to anchor the intraday trading price to the external spot price.
For more details, please refer to Mark Price Calculation.
Example
User A chose to buy spot BTC directly at a price of 50,000 USDT without using leverage. When the price of BTC rises by 5% to 52,500 USDT, User A’s return is 2,500 USDT, and the return % is 5%. If the price of BTC falls by 5% to 47,500 USDT, User A’s unrealized profit and loss (PNL) would be -2,500 USDT, with a return of -5%.
In contrast, User B used 10x leverage to trade perpetual futures. He bought 100,000 contracts (equivalent to 10 BTC) at the price of 50,000 USDT, and the initial margin was 50,000 USDT.
If the BTC price rises by 5% and User B’s position value increases to 525,000 USDT, User B’s unrealized profit would be 25,000 USDT, with a return of 50%.
If the BTC price drops by 5% and his position value decreases to 475,000 USDT, User B’s unrealized profit and loss would be -25,000 USDT, with a return of -50%.
| User A - Spot Trading | Project | User B - Gate Perpetual Futures Trading |
|---|---|---|
| 50,000 | Entry Price (USDT) | 50,000 |
| No Leverage (1x) | Leverage | 10x |
| 50,000 (1 BTC) | Value (USDT) | 500,000 (10 BTC) |
| 50,000 (1 BTC) | Position Margin (USDT) | 50,000 (1 BTC) |
| 2,500 | If BTC price rises by 5%, unrealized PNL is (USDT) | 25,000 |
| 5% | Return % | 50% |
| -2,500 | If BTC price falls by 5%, unrealized PNL is (USDT) | -25,000 |
| -5% | Return % | -50% |
Note: This example does not include futures funding, trading fees, entry and exit fees, etc. For more details about liquidation, please refer to Liquidation Process.
Liquidation
When the margin balance is lower than the maintenance margin (i.e. the maintenance margin level falls to 100% or below), the position will be liquidated.
Unrealized PNL is the floating PNL calculated with the mark price as the exit price.
The mark price at the time of triggering liquidation is the liquidation price. The liquidation process relies on the market itself, the insurance fund, and the automatic deleveraging (ADL) system. Within a contract, the maintenance margin level is fixed, while the initial margin is related to the leverage. The higher the leverage, the smaller the initial margin, and the closer it is to the maintenance margin, making liquidation more likely. On the other hand, higher leverage increases the return %, meaning that risk and return are proportional.
Example
Suppose User A and User B both expect BTC to rise in the near future. When the BTC price is 50,000 USDT, User A buys 1 BTC in the spot market, while User B uses 100x leverage to buy perpetual futures, effectively going long on 1,000,000 contracts (equivalent to 100 BTC).
However, instead of rising, the BTC spot price drops to 49,900 USDT. User A experiences a loss of 0.2%, while User B’s loss rate reaches 20% due to the high leverage.
| User A - Spot Trading | Project | User B - Gate Perpetual Futures Trading |
|---|---|---|
| 50,000 | Entry Price (USDT) | 50,000 |
| No Leverage (1x) | Leverage | 100x |
| 50,000 (1 BTC) | Value | 100 BTC |
| 50,000 (1 BTC) | Position Margin (USDT) | 50,000 |
| -100 | Loss after a 0.2% drop (USDT) | -10,000 |
| -0.2% | Return % | -20% |
As the BTC price continues to fall to 49,750 USDT, User A’s loss increases to 0.5%. At this point, User B’s position margin has decreased to just 0.5 BTC (0.5% maintenance margin), triggering liquidation and resulting in the loss of his entire margin.
| User A - Spot Trading | Project | User B - Gate Perpetual Futures Trading |
|---|---|---|
| 50,000 | Entry Price (USDT) | 50,000 |
| No Leverage (1x) | Leverage | 100x |
| 50,000 (1 BTC) | Value | 100 BTC |
| 50,000 (1 BTC) | Position Margin (USDT) | 50,000 |
| -250 | Loss after a 0.5% drop (USDT) | -25,000 |
| -0.5% | Return % | -50% |
When a trader’s position side is consistent with the market trend, contracts can yield several times the profit of a corresponding spot trade, allowing for significant returns with a small investment. However, if the market moves on the opposite side to the trader’s position, the losses can be magnified as well.
Note: This example does not include futures funding, trading fees, entry and exit fees, etc. For more details about liquidation, please refer to Liquidation Process.
Insurance Fund
Liquidation is to close the position at the bankruptcy price, and the bankruptcy price is the mark price at which the margin balance (including unrealised PNL) is equal to the exit fee. If the actual fill price is better than the bankruptcy price, the remaining amount (i.e., the lesser loss) will be credited to the insurance fund, which will be activated if the liquidation order is not executed by the time the mark price breaks the bankruptcy price.
For more details, please refer to Instructions of Insurance Fund.
Auto-Deleveraging (ADL)
If the liquidation order is not executed by the insurance fund, ADL will be triggered, and the user with the highest return will be selected from the users holding positions to reduce his/her position in order to execute the unfilled liquidation order. Return ranking is based on “Unrealized PNL x Leverage” (Note: If the position is in cross margin mode and the leverage limit has not been set, the maximum leverage of the position will be applied). The lights on Gate website indicate the order of the current position in the ADL queue. The more lights are lit, the greater the probability that the position will be reduced in the case of ADL events. It is recommended to close and re-open positions to avoid automatic position reduction.
Position Mode
Cross Mode and Isolated Mode
In isolated mode, the position margin is the amount of margin allocated to the position. It is equal to the initial margin at the beginning and may be affected by leverage, risk limit and margin deposits or withdrawals. When the margin balance is less than the maintenance margin, the position is liquidated and the loss is limited to the allocated margin.
In cross mode, all positions share margin and you can set multiple contract positions in cross margin mode. Liquidation will be triggered when the account maintenance margin level falls to 100% or below, and the user may lose the entire balance. However, unrealised profits cannot be used as a margin for other positions.
One-Way Mode and Hedge Mode
Gate offers two position modes: one-way mode and hedge mode. Each mode is suited to different trading strategies and needs.
1. One-Way Mode
- In one-way mode, users can only hold positions on one side in a futures market, either long (buy) or short (sell). This means that if a user wants to change the position side, he/she must first close the existing position before opening a new one on the opposite side.
- Gate defaults to using one-way position mode.
- This mode offers flexibility, allowing users to switch between isolated and cross margin modes while holding a position.
2. Hedge Mode
- In hedge mode, users can hold both long and short positions simultaneously in a futures market. This mode is ideal for users who want to hedge against market uncertainty by holding positions on both sides.
- However, in hedge mode, users cannot switch between isolated and cross margin modes while holding a position, which increases the complexity of operations and the diversity of strategies.
By selecting the position mode that best suits the needs, users can better manage risk and return, enabling more flexible operations in a volatile market environment.
Order Price Limit
The order price cannot deviate more than 50% from the current mark price. If the order is intended to reduce a position, the order price cannot exceed the position’s bankruptcy price. If the order is to increase a position, the order price cannot exceed the position’s liquidation price. If the user still wishes to execute the order at the specified price, it is recommended to reduce the leverage and then attempt to place the order at the desired price again.
Gate reserves the final right to interpret the product.
For further assistance, please visit the Gate official support page or contact our customer support team.
