Perpetual Swaps: Comparisons and Findings

The crypto-derivatives have gained significant traction over the past two years. In particular, the perpetual contract, which is an important product for price discovery and speculation, and has the most volume traded as a consequence.

Pioneered by Bitmex, it is now traded on every derivatives exchange. In this article, we compare and comment on the specifications of Bitcoin perpetual contract products offered by Binance, Bitmex, Crypto Facilities, Deribit, FTX, JEX, and Okex.

A perpetual swap, also known as a contract-for-difference in the traditional markets, is a derivative similar to a traditional futures contract, however, without expiry or settlement date. It mimics a margin-based spot market and uses a funding mechanism, which is a series of periodic payments between buyers and sellers of the perpetual contract and is implemented to keep the traded price in line with the underlying reference price.

Funding

Factors such as settlement currency, funding windows, reference index, liquidity, and exchange standing contribute to differences in funding rates across the offered perpetual products.

In the period from September 1 to November 21, 2019, we observe substantially positive funding rates, ranging from 14% to 26% annualized. Bitmex and Deribit had the lowest annualized funding rate reaching only 14%, while Crypto Facilities and JEX had it over 20%, and Bybit over 30%. When comparing Bitmex, Bybit, and FTX in the period from November 18 to December 9, 2019, we see that FTX had substantially lower funding rates than Bitmex while Bybit had substantially higher.

For long-term perpetual swap traders, the funding can be a substantial percentage of the overall profit of their position. Therefore, if traders wish to maximize their profitability, they should consider the exchange funding rate offering for their position.

Margin

The initial margin is the minimum amount required in your account to open a position. The maintenance margin is the minimum amount required in your account to keep a position open. Even though exchanges claim 100x to 125x leverage, maintenance requirements play an important role in the liquidation process and affect how much an individual can actually participate in the price action.

Due to maintenance requirements, the actual leverage across exchanges is much lower than advertised. It is worth to compare “Max Leverage” with the “Max Leverage to survive 1% Move” to see the difference. If you are not aware of this, you might open a 100x position only to get liquidated on a 0.5% move.

Moreover, some exchanges, notably Binance, offer a maximum position size of 50,000 USDT with up to 125x leverage. Bitmex and Deribit offer up to 100 BTC position with a maximum leverage of 100x, with Okex offering up to $200k worth of positions. Larger positions requiring higher maintenance requirements.

Summary

The perpetual swap contracts are now offered in multiple crypto exchanges. However, there are key differences in the contract specifications throughout the market. Depending on their trading style, traders may be able to improve their performance by considering where and how they trade.