Contents of this article
What are USDT Margined futures contacts?
What are USDT Margined (Collateralized) perpetual contracts?
How to trade USDT Margined Perpetual Futures on XT.COM
What are USDT Margined futures contacts?
USDT-Margined futures trading refers to the process of trading cryptocurrency futures contracts using USDT as the margin. USDT, also known as Tether, is a stablecoin pegged to the US dollar, used as collateral that allows traders to trade without actually owning the underlying assets. This type of margined futures trading enables users to trade cryptocurrencies with higher leverage compared to traditional methods like spot trading, thereby maximizing their profit potential. USDT-Margined futures Trading offers traders a more convenient and cost-effective way to trade. Many exchanges, like XT.COM, offer USDT-denominated futures trading products, allowing traders to capitalize on the volatility of the cryptocurrency market and potentially achieve higher returns compared to spot or regular trading.
Advantages of USDT-Margined Futures Trading
In the financial markets, trading USDT-Margined futures has become an increasingly popular and viable option, offering numerous advantages to both novice and experienced traders. USDT-Margined futures provides access to the cryptocurrency market with significantly more capital than traditional contracts, allowing traders to leverage high levels of margin. Futures trading also offers traders tighter spreads and faster execution speeds, which can significantly reduce trading costs. With USDT-Margined futures, traders can achieve higher profits from smaller price movements by utilizing digital assets stored in their USDT wallets. Moreover, these futures provide extensive hedging opportunities, enabling traders to diversify their portfolios and manage risk more effectively. USDT-Margined futures also add convenience for traders by allowing for quick and easy entry and exit from positions with larger trading volumes instantly. With it, traders gain access to a broader selection of options, enabling them to capitalize on various market trends and cryptocurrency movements. In summary, USDT-Margined futures is a great way to leverage cryptocurrencies as tradable assets.
Mechanism of USDT-Margined Futures
USDT-Margined Futures implements a price-time-priority algorithm. The earliest active buy order at the highest price takes priority over any subsequent order at that price, which in turn takes priority over any active buy order at a lower price. When the margin ratio is equal to or less than 0, liquidation will be triggered for the position.
The formulas are as below:
Isolated Margin Ratio = Account Equity / Occupied Margin * 100% – Adjustment Factor;
Cross Margin Ratio = Account Equity / ∑All Contracts in the Cross Margin Account (Occupied Margin * Adjustment Factor）– 100%
What is USDT-Margined Perpetual Futures Trading?
USDT-margined perpetual trading is a leveraged way to trade cryptocurrencies such as Bitcoin, Ethereum, and USDT by using USDT to access additional funds. Perpetual trading is a type of derivatives trading that allows investors to speculate on the prices of various assets, such as cryptocurrencies. Perpetual futures is essentially futures contracts without an expiration date—this means traders can predict market trends and hold positions for an indefinite period. By using perpetual futures, traders can benefit from lower fees compared to traditional margin accounts, thus having more capital available for trading in the volatile cryptocurrency market. Besides, it also provides users with greater flexibility, allowing them to take long or short positions based on market conditions. For these and other reasons, USDT-Margined perpetual futures trading has become an increasingly popular way to enter the cryptocurrency trading arena.
For example, if a trader goes long on 1,000 contracts at the price of 10,000 USDT, where each contract is worth 0.001 BTC, this means they are essentially looking to gain 1,000 × 0.001 = 1 BTC. The profit or loss calculation is equal to the number of contracts × multiplier × (closing price - opening price). A few days later, if the price rises to 12,000 USDT, the trader will make a profit of 1,000 × 0.001 × (12,000 - 10,000) = 2,000 USDT. Conversely, a trader who goes short on the same number of contracts during this period would lose 2,000 USDT. (Fees not included)
Terminology
- P&L
P&L stands for Profit & Loss. All USDT collateralized contracts use USDT to calculate PnL. The Profit and Loss (PnL) is calculated as {future exit price- future entry price} x position size/future entry price. When calculate the PnL of XT.COM Futures USDT Margined futures contacts, traders need to consider three aspects: the expenditure of service fees, the income or expenditure of funding fees, and the profit and loss of closing positions. Click here to check more details.
- Leverage and Margin
Leverage allows traders to open a larger position than their capital would normally allow by trading with borrowed funds. Leverage is an extremely powerful tool that can be used to increase both gains and losses when trading perpetual futures. Leverage also impacts the amount of margin required to open a position since higher leverage equates to a lower initial margin requirement. Leverage is therefore a critical factor for traders seeking to engage in perpetual futures contracts and must be carefully considered when using such futures.
Margin refers to the difference between the margin deposit and the margin call requirement. The margin deposit is the funds deposited into an account for secure trading purposes, while a margin call is a request for additional funds due to market changes or potential losses. Thus, the margin determines the amount of capital needed to reasonably withstand adverse price movements and losses in perpetual futures, which helps maintain market stability and allows traders to reasonably assess that their margin requirements won't be negatively impacted in the event of unfavorable price trends.
- Liquidation
Liquidation in perpetual futures trading occurs when a trader’s account balance falls below the maintenance margin level. This happens when the losses associated with an open position exceed the available margin in their trading account. Liquidation is a mechanism designed to ensure that traders always maintain sufficient funds in their accounts to cover the risks associated with their open contracts.
Liquidation also helps traders avoid unfavorable pricing caused by market illiquidity or price manipulation. By limiting a trader's potential losses, liquidation ensures a safe and reliable market environment for all parties involved.
- Market Price, Mark Price and the Index Price
Market Price: Market Price is the current fair value of an underlying asset including its basis spread, funding rate, and insurance fund factor. Market Price will constantly adjust through the day from trades being executed with buyers and sellers. It is used to determine the margin required to maintain perpetual futures positions and to open new positions. Market Price plays an important role in dictating how much margin a trader or investor needs to maintain their positions on the exchange based on their financial goals and strategies.
Mark Price: Mark Price is typically set equal to the underlying index price and acts as a reference point when executing trades and calculating margin requirements. Mark Price also serves as the starting point for Mark-to-Market calculations in which gains and losses resulting from price changes are automatically settled within a futures contract. Mark Price allows traders of perpetual futures contracts to be able to enter and exit their positions with greater certainty that their differences will be calculated accurately and reliably.
Index Price: Index Price refers to the current market price of perpetual futures. Index prices are determined by taking the average of all bids and offers in that particular contract. Index Price is an important factor in calculating your margin requirement when trading perpetual futures, as it helps determine how much capital is needed to cover potential losses from any open positions. If the index price falls, the margin requirement for traders also decreases; conversely, if the index price rises, the margin requirement increases. Traders must stay up to date with Index Price to adjust their strategy accordingly and remain profitable. Check the XT.COM Futures index price here.
- Isolated Margin and Cross Margin
Isolated Margin: Isolated Margin is a type of margin offered with perpetual futures. This type of margin allows traders to manage their risk more efficiently by allowing only part of their position to be automatically liquidated if there is a significant price movement. It also provides traders with plenty of liquidity while they maintain open positions, allowing them to make more strategic decisions when the markets move quickly.
Cross Margin: Cross Margin is an optional margin mode that reduces the margin requirement for traders, allowing them to take on larger positions without depositing additional funds into their accounts. Cross Margin works by allowing traders to spread their total account collateral over all of the positions held in the same contract. Therefore, Cross Margin ensures that traders have adequate margin levels across all positions in a particular contract and can allow them to increase their position size when needed.
- Perpetual Funding Rates
Funding Rates in perpetual futures margin is a payment that occurs between Funding Pairs. It aims to encourage both Funding Providers and Funding Receivers to maintain equality between the long and short sides of the contract. The funding rate also encourages fund providers to hold positions close to the target price of the funds, providing an incentive for them. Fund providers are the long position holders of the contract, while fund receivers are the short position holders. Funding Rates are calculated by the Spot Index Price and Fair Price Mark, payable in USDT tokens. Whenever a funding rate occurs, it affects all positions held in the specific perpetual futures, requiring close monitoring by the relevant parties. Check XT.COM Futures funding rates here.
- Risk Protection Fund
The Risk Protection Fund is a mandatory fund in perpetual contracts, ensuring there is always an available margin as collateral. Derivative products like swaps, futures, and options also utilize a risk protection fund to support client accounts, covering any losses beyond what the clients can bear themselves. The Risk Protection Fund helps protect traders against any market force or technical issues that can cause instant liquidation of their positions due to insufficient margin. Traders are only required to pay a small expense ratio instead of upfront payments, allowing them more freedom to explore new opportunities and take greater risks knowing the Risk Protection Fund has them covered. Check XT.COM Futures risk protection fund here.
How to trade USDT Margined Perpetual Futures on XT.COM
Welcome to our tutorial on how to trade USDT-M perpetual futures.
1. Register an account or log in to XT.COM
2. After logging in, click on the "Derivatives" option in the top navigation bar. From the dropdown menu, select "USDT-M Futures" and then "Perp" to access the trading page for USDT-M perpetual futures.
3. To begin trading, first click on "BTC/USDT" in the top-left corner of the page, then select the asset you want to trade from the left-hand panel.
4. Then, choose “Open Long” or “Open Short” based on your judgment. You can place a bet on the future direction of the market by buying or selling contracts. A long position means you expect the market to rise, while a short position means you expect it to fall.
5. If we place a limit order, there will be three different types of limit orders that we can place: GTC, IOC, and FOK.
- After selecting the order type, choose the margin mode, unit, and leverage. The available unit options are “BTC”, “USDT (Cost Value)”, and “USDT (Nominal Value)”. You can select the option based on your needs, and trading costs and profits will be calculated according to the chosen unit.
- BTC: Uses Bitcoin as the measurement standard for quantity.
- USDT (Cost): Refers to the actual amount of USDT invested in the trade.
- USDT (Nominal Value): Represents the contract value calculated based on the contract quantity and the price of the underlying asset.
7. Enter the price, amount, and click “Open Long” to place the order.
8. The orders that have been completed will be listed under “Current Positions”, while the ones that haven’t been filled yet will be shown under “Open Orders”.
9. If you want to close a position, you can choose an order type, enter the price and amount, and choose leverage to close the position.