Introduction to KCEX Perpetual Futures: Perpetual Futures, Leverage, Funding Rates, and Liquidation Explained

Perpetual futures are cryptocurrency derivatives with no expiration or settlement date. Traders can open long or short positions based on market trends and use leverage to improve capital efficiency. This article introduces the basic concepts of KCEX perpetual futures, leverage and liquidation mechanisms, funding rates, mark prices, and the main differences between perpetual futures and spot trading. It will help you quickly understand the trading rules and risks of perpetual futures.

1. What Are Perpetual Futures?

Perpetual futures are digital asset derivatives with no expiration or settlement date. There is no delivery time limit, allowing traders to hold long or short positions for an extended period. You can open a long position if you expect the asset’s price to rise or open a short position if you expect its price to fall. In addition, we support leverage of up to 125x to improve your capital efficiency.

KCEX currently supports USDT-M perpetual futures and USDC-M perpetual futures, which use USDT and USDC, respectively, as their margin and quote currencies.

2. Core Mechanisms of Perpetual Futures

1. Leverage and Liquidation

Users may select a leverage multiple according to their trading needs, allowing them to control a higher-value position with a smaller amount of capital. KCEX currently supports leverage of up to 125x. However, higher leverage also means a greater risk of liquidation.

Users can assess their position risk by checking the estimated liquidation price and margin ratio displayed for the position. When the margin ratio of your futures position reaches or exceeds 100%, liquidation will be triggered. This means the position will be liquidated and the funds allocated to it will be lost.

2. Funding Rate Mechanism

Perpetual futures are derivatives with no expiration or settlement date. Therefore, a funding rate mechanism is required to keep the futures price anchored to the spot price and prevent prolonged and substantial deviations between the two prices.

• When the market trend is bullish, the funding rate is positive, and long-position holders pay funding fees to short-position holders.

• When the market trend is bearish, the funding rate is negative, and short-position holders pay funding fees to long-position holders.

Through the funding rate mechanism, the system periodically requires long- and short-position holders to pay fees to one another according to the funding rate, encouraging the futures price to realign with the spot price. Funding fees are generally settled once every eight hours.

3. Mark Price

KCEX uses the mark price to calculate unrealized PNL and determine whether a position should be liquidated. This helps prevent unnecessary deviations between the latest traded price and the index price caused by market manipulation or insufficient liquidity, thereby reducing unnecessary liquidations.

3. Differences Between Futures Trading and Spot Trading

1. Profit Direction

Spot trading only generates profits when the asset price rises, while futures trading provides opportunities to profit from both upward and downward price movements. Based on your market assessment, you can choose to open a long or short position.

2. Leverage

Leverage gives futures trading a high degree of capital efficiency. In futures trading, you only need to provide a fraction of the market value of 1 BTC as capital to open a 1 BTC futures position. In comparison, spot trading does not provide leverage.

For example, to purchase 1 BTC on the spot market, you must provide an equivalent amount of USDT or USDC matching its full value. If you only have 10,000 USDT available, you can purchase only 10,000 USDT worth of BTC. In the futures market, however, if you have 10,000 USDT available and use 20x leverage, you can open a position worth 200,000 USDT.

3. Asset Ownership

After purchasing an asset through spot trading, you actually hold the asset and are therefore entitled to the associated benefits, such as project airdrops. You may also withdraw it freely and transfer it across all supported networks.

As a derivative, futures trading does not involve ownership of the actual asset. Therefore, you are not entitled to the benefits associated with holding the asset and are only exposed to the potential returns or risks resulting from its price movements. You may open or close a position at any time, but you should keep your account risk ratio within a safe range to avoid liquidation.

4. Suitable Traders

Spot trading is more suitable for long-term holders and users who prefer dollar-cost averaging strategies.

Futures trading is more suitable for short-term traders and users seeking to hedge asset-related risks.

KCEX remains committed to providing users with secure and efficient futures trading services. Thank you for your support!