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Leverage and P&L

Trading Guide

Leverage and P&L

Perpetual contract is a derivative product. Without the expiration or delivery required, perpetual contracts trade and settle with the underlying cryptocurrency.

Traders enter either into a long (profit from upward trend) or short (profit from downward trend) position. Available leverage ranges from 1-100x.

Using the leverage, traders can either take long or short positions. Buy trades: Buy BTC perpetual contract in anticipation of rise in price. Profitable when the BTC price rises in the future
Sell trades: Sell BTC perpetual contract in anticipation of decline in price. Profitable when the BTC price drops in the future.

Available to use leverage up to100x for higher profitability

With 100x leverage, traders can execute 100 BTC worth of contracts with just 1 BTC in margin.

Example: Modest 5x leverage (for simplicity, commission/funding rate are excluded from the calculation),
1) Buy trades: If BTC goes up by 1% -> 5% profits. If BTC goes down by 1% -> 5% losses
2) Sell trades: If BTC goes down by 1% -> 5% profits. If BTC goes up by 1% -> 5% losses

Higher leverage will result in higher profit but higher leverage also means higher risk.

Physical VS Perpetual Contracts

1. Profitability from increase in underlying crypto

User S -> Physical trader , User F -> Perpetual contract: Both users with 8,000 USDT (assuming 1 BTC = 8,000 USDT). User S buys 1 BTC while User F buys 10*8000 BTC contracts with 8,000 USDT with 10x leverage.

If BTC goes up to 8,800 USDT:
User S: (8,800-8,000)*1=800USDT -> 10% profit
User F: [(1/8,000-1/8,800)*10*8,000]*8,800=8,000USDT -> 100% profit

2. Profitability from decline in underlying crypto

User S -> Physical trader , User F -> Perpetual contract: Both users posses 5,000 USDT (assuming 1BTC=5,000USDT). In anticipation of decline in BTC price, User S sells 1BTC for 5,000 USDT in fiat while User F sells 10*5,000 BTC contracts using 10x leverage.

If BTC goes down to 4,500 USDT:
User S: balance 5,000USDT, no change in P&L -> 0% profit
User F: [(1/4,500-1/5,000)*10*5000]*4,500=5,000USDT -> 100% profit

3. Loss from increase in underlying crypto

User S -> Physical trader , User F -> Perpetual contract: Both users with 5,000 USDT (assuming 1 BTC = 5,000 USDT). User S buys 1 BTC while User F buys 10*5000 BTC contracts with 5,000 USDT with 10x leverage.

If BTC goes down to 4,700 USDT:
User S: (4700-5000)*1=-300USDT -> -6% loss
User F: [(1/5000-1/4700)*10*5000]*4700=-3,000USDT -> -60% loss

As illustrated above, it is possible for perpetual contract traders to profit in both up and down markets. However, it is at a cost of greater risk. We highly recommend to assess your risk appetite before engaging using leverage.