1.Introduction
Perpetual Contracts are cryptocurrency derivatives launched by HPX, priced and settled in USDT per contract. These contracts support both long and short positions and offer high leverage. Perpetual contracts do not have settlement dates and use a funding fee mechanism to stay closely aligned with spot market prices. They utilize a fair mark price to calculate unrealized profits and losses and avoid unnecessary liquidations due to market fluctuations. The aim is to replicate the spot market conditions while allowing high leverage.
2. Futures Definition
Example of Opening a Position:
For the BTC/USDT futures:
- Q:How is the BTC/USDT contract priced?
- A:The underlying price for the BTC/USDT contract is the HPX index. Both the underlying price and the perpetual contract price are quoted in USDT, and all margin and profits or losses are also denominated in USDT.
- Example:If Xiao Wang goes long on 100 BTC at a price of 5,000 USDT, this means taking a long position of 100 BTC/0.001 BTC per contract = 100,000 contracts. If the contract price later rises to 6,000 USDT, the investor’s profit would be:
100,000 x 0.001 (6,000 - 5,000) = 100,000 USDT
3.Fee Rates
Perpetual contract fees are:
- Maker Fee: 0.02%
- Taker Fee:0.06%
4.Price Marking Calculation:
1. The mark price for perpetual contracts is calculated using the funding fee basis rate and price index.
2. Funding Fee Basis Rate = Funding Rate * (Time until next funding fee payment / Funding Fee Interval)
3. Mark Price = Index Price * (1 + Funding Fee Basis Rate)
Since unrealized profits and losses are the primary reason for forced liquidation (liquidation), and perpetual contracts can have up to 100x leverage, accurately calculating position profits and losses is crucial to avoid unnecessary liquidations. The intrinsic value of a contract is based on the price index derived from weighted averages of major markets, and this index is a key component of the mark price.
Price Index Calculation Rules:
The perpetual contract price index is derived from a basket of major spot markets, weighted by trading volume. Referenced markets include: Huobi, Binance, OKX, Bittrex, HitBTC, Gate.io, Bitmax, Poloniex, MXC.
The weight of specific prices is adjusted periodically based on trading volume. Additional protective measures are in place to avoid poor market performance due to price disruptions or connection issues. These measures include:
- Single Price Source Deviation: If a price from a single exchange deviates more than 5% from the median price of all sources, that exchange’s price weight is set to zero.
- Exchange Connection Issues: If an exchange fails to update its trading data within 10 seconds, its weight is set to zero when calculating the weighted average.
The mark price reflects a fair spot price and is used to calculate unrealized profits and losses for contracts. Please note that actual profits and losses are based on the market price at the time of liquidation.
Mark Price Formula:
Mark Price= (Price Level 1,Price Level 2, Contract Price})
- Price Level 1: Index Price * (1 + Funding Rate * (Time until next funding rate collection (hours) / 8)
- Price Level 2: Index Price + Moving Average (30-minute basis)
Moving Average (30-minute basis) = Moving Average ((Bid1 + Ask1) / 2 - Index Price), sampled every minute for 30 minutes.
Median: Choose the middle value among Price Level 1, Price Level 2, and Contract Price. For instance, if Price Level 1 < Price Level 2 < Contract Price, the mark price is Price Level 2.
In extreme market conditions or significant deviations between spot and mark prices, HPX may use Price Level 2 as the mark price.
5.Funding Fees
Purpose:
The funding fee mechanism promotes alignment between the actual market price and the index price by compensating between long and short positions.
HPX does not charge any funding fees; fees are exchanged between users.
Collection Timing:
Funding fees are exchanged between long and short positions every 8 hours, at UTC+8 00:00, UTC+8 08:00, and UTC+8 16:00. Fees apply only if positions are held at these times. Positions closed before these times do not incur fees.
- Positive Funding Rate: Longs pay shorts.
- Negative Funding Rate: Shorts pay longs.
For positions with both long and short components, funding fees are only calculated on the net position.
Funding Fee Calculation:
Funding Fee = Position Nominal Value x Funding Rate
The position value is independent of leverage. For example, holding 100 BTC perpetual contracts means funding fees are based on the nominal value of these contracts, not on the margin allocated.
Funding Rate Calculation:
Funding Rate (F) = Premium Index (P) + Clamp (Interest Rate (I) - Premium Index (P), 0.05%, -0.05%)
- Premium Index (P) = (Max (0, Depth Weighted Bid Price - Mark Price) - Max (0 , Mark Price - Depth Weighted Ask)) / Spot Price + Reasonable Basis of Mark Price
Interest Rate (I) = (Denominated Interest Rate Index - Base Interest Rate Index) / Funding Rate Interval
Funding Fee Cap:
HPX caps the funding rate to ensure that high leverage can be used safely. The absolute maximum funding rate is 0.15%.
6.Forced Liquidation
HPX's perpetual contracts offer high leverage, and to ensure the safety of all positions, investors must be aware of the risk rate.
When the cross margin risk rate falls below 10%, positions will be forcibly liquidated, which could result in the loss of all positions and available margin.
Cross Margin Risk Rate Calculation:
Cross Margin Risk Rate = Account Balance + Total Floating P&L - Total Commission Fees Total Used Margin x 100%
(Note: The total commission fee rate is 0.00075, used as a fixed parameter for real-time risk rate calculations.)
Example:
- Suppose a user has a total of 10,000 USDT in their account and uses 1,000 USDT as margin to open a position with 100x leverage. The initial risk rate would be:
10,000/1,000= 1000\%
- If the market price drops and the account balance decreases to 100 USDT:
100/1,000 = 10%
- This triggers a forced liquidation.
To minimise the risk of forced liquidation, HPX uses the mark price to prevent liquidations caused by liquidity shortages or market manipulation.
7.Liquidation Beyond Margin
In cases of extreme market volatility, liquidation beyond margin may occur. If this happens:
- Cross Margin Mode: The entire account balance will be reduced to zero.
- Isolated Margin Mode: The maximum loss for a single position will be limited to the margin allocated to that position, and the margin will be considered zero after forced liquidation, but no negative balance will be recorded.
HPX’s risk protection fund will cover the maximum loss to ensure that it does not exceed the account balance.