Dogechain Explains - Crypto Perpetuals.

10 Mar 2023, 15:23

Dogechain Explains - Crypto Perpetuals ♾ Crypto perpetual contracts or “perps” are a derivative unique to the cryptocurrency market. They are becoming increasingly prevalent trading instruments that could find their place on #Dogechain very soon. 👀 📆 Similar to futures, they are an agreement to buy/sell crypto at a fixed price. This means that traders can speculate on the price going up or down and pocket the difference if the market goes their way. Unlike futures however, perpetuals do not have an expiration date. 📈 📉 This allows traders to go long or short indefinitely, and close their position whenever they wish. Some unique mechanisms come into play that affect how perps work 👇 🔹 Maintenance margins - each perp depends on a maintenance margin rate, which is the lowest amount of collateral traders need to hold to keep their position open. If the collateral value falls beyond the threshold, the position is liquidated. 💸 🔹 Funding rate mechanism - To avoid too many long or short positions simultaneously, perpetuals use a funding mechanism. The goal is to adjust the perp’s value relative to the underlying asset’s price. 💰 E.g. if the asset’s price goes below a perp’s price, the mechanism will require shorters to pay the funding rate to those with long positions. This gives incentive to purchase contracts, causing the perp price to rise and realign with the price of the asset. ☯️ On the other hand, if the asset’s price goes above a perp’s price, the longs will pay rebates to shorts. These fees incentivize buying or selling to keep the perp contract in balance with the real-time price of the asset. There are many advantages to perps: 🔹 No need for custody - users don’t own the underlying asset 🔹Potential to profit from bullish or bearish positions 🔹Easy access to leverage 🔹Funding fees increase profits in sideways markets Dogechain is bringing DeFi & long awaited utility to Dogecoin. Join the family! 🚀 Website I Twitter I Discord I TikTok I Reddit I Blog I Instagram