Greetings, curious tradooor! Today, we invite you to a degen journey to on-chain Perpetuals trading, its advantages, and potential risks. Arm up with a cup of coffee, head for the Spin Perpetuals trading section, and start exploring the opportunities Perps offer to traders. LFG!
Understanding Perpetuals
So what are these weird Perpetuals?
First of all, they are derivatives. That means, that they just mirror the price of some assets and allow you to speculate on the price fluctuations. When trading derivatives, you don’t actually buy NEAR or BTC or any other asset; instead, you rather make a bet on the asset price growth or decrease.
For example, the current spot price of NEAR is $5. You think that the price will go down. In this case, you only need to have the collateral (funds used to back your position, USDC in the Spin case) to sell NEAR-PERP and get exposed to its decrease in price. You don’t need to have NEAR to do that.
With Perpetuals, you can create positions that have a value that exceeds your collateral by using leverage. This makes Perpetuals more capital efficient than spot trading: you don’t need to fully collateralize your position. Let’s get back to our example to understand how it works.
So, you deposit 100 USDC to Spin and sell 60 NEAR-PERP. The position value, in this case, is 60 NEAR-PERP 5 USDC (NEAR spot price) = 300 USDC. As you have 100 USDC used as collateral, so your leverage is x3. If the NEAR price decreases to $4, your profit will be: 60 NEAR-PERP (5 USDC — 4 USDC) = 60 USDC. This way, you increase your deposit by 60%.
If you trade on spot, it only allows you to earn if the asset price grows. Let’s compare spot trading to Perpetuals trading in uptrend markets to understand it better.
You have 100 USDC and you believe that NEAR will grow in price. You just buy 20 NEAR at a price of 5 USDC per NEAR. When the price increases to 6 USDC, you sell NEAR and earn: 20 NEAR 6 USDC — 20 NEAR 5 USDC = 20 USDC.
With the same 100 USDC, you could have opened a position worth 60 NEAR (x3 leverage) or even 200 NEAR (x10 leverage, maximum possible on Spin). In this case, your yield would be 60 USDC (x3 leverage) or even 200 USDC (x10 leverage).
Obviously, using leverage does not only multiply profits but also exceeds potential losses so if your bet was incorrect, your losses will be multiplicated proportionally to the leverage you had. If your potential loss value is close to the collateral (balance) you have, this will cause your position to be liquidated. In this article, we will not do too much in detail, but if you’re interested in understanding how liquidation works, check the Spin documentation on GitBook.
TL;DR:
- With Perpetuals, you can earn on any price movement, be that asset growth or decrease in price;
- To trade any PERP contract, you only need to have the collateral — USDC in the Spin case;
- You can open positions that increase your balance by up to 10 times (leverage);
- Be careful when using leverage as it multiplies both profits and losses.
- Liquidation happens when you don’t have enough balance (collateral) to cover potential losses.
Navigating the Spin Perpetuals trading section
Now, you understand the basics of Perpetuals trading, so let’s move to real trading. To open the terminal, visit perp.spin.fi and connect your wallet. Right now (as of September 15th), only whitelisted users can trade Perpetuals with 100 new addresses added weekly. In early October, Perpetuals trading will be available to every user on NEAR.
Here’s what you see when your wallet is connected and you don’t have any trading history:
To customize the chart view, press on the timeframe indicator above the contract name and select the timeframe for candlebar charting. In our example, we use 1h charts.
Next to the contract selector, you can see the general information about the contract.
Mark price is used as a reference, a fair price for a contract, and differs from the “Last Price”. It is used as a reference in liquidations and calculations of unrealized PnL (Profit and Loss). Mark Price is used to prevent unfair and unnecessary liquidations that may happen when the market is highly volatile. Additionally, it also helps prevent price manipulation.
Index price is an aggregate price extracted from the major spot exchanges, weighted by their relative volume; this is done to prevent price manipulation from a single exchange.
Funding refers to periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. If the funding is positive, longs (PERP-buyers) pay shorts (PERP-sellers), and if negative — shorts pay longs. If you want to learn more about funding and how it is accrued or deducted, please check our Gitbook article about funding rates.
The rest terms in this part are absolutely similar to spot trading and are unlikely to need some explanation :)
Now, let’s have a look at the right side of the terminal:
This part of the terminal shows your personal account metrics and is essential to assess your risks. If you click on the terms here, you will be able to read the tooltips explaining the idea behind each term. Pay attention to the margin ratio indicator because it shows your actual risks of liquidation.
Let’s now deposit 5 USDC to open our first position. In this case, our buying power is 50 USDC meaning that we can open a position worth that value.
Say, we want to open a short position (sell NEAR-PERP). We can open either a market (sell at the current price) or a limit order (sell at some future price). Let’s create a market order for 5 NEAR-PERP.
Once we place the market order, our account metrics are updated and we can see the information about our position below the chart.
The value of the position we’ve opened is 22.5 USDC, 4.5 times higher than the deposit we’ve made, so we’re trading with an x4.5 leverage. We can open more positions because our Margin Ratio is above 1. To close the position, we can simply press on the cross next to the position details.
Hedging risks: Spot & Perpetuals
You can combine spot and Perpetuals trading to balance your trading risks. As we know, Perpetuals are more capital efficient and allow you to earn on any price movement, so let’s have a look at an example.
Let’s say you have 20 NEARs locked in farming in some protocol. They may be staked, used in a liquidity pool, or in a landing protocol. You do not want to withdraw these funds, but you are afraid that the NEAR price will drop in the near future (due to the policy of the US Federal Reserve, the phase of the moon, or the advice of “professional investors” from Twitter), so you simply open a short NEAR-PERP position on Spin Perpetuals for the same 20 NEAR and adjust your risk by selecting the best leverage.
In the case of price changes, the loss on the spot will be compensated by the profit on the perp or vice versa. At the same time, your NEAR continues to generate income for you!
You can play around with such strategies as you wish, the example above is very basic and just shows the idea behind controlling trading risks. You can also share your ideas on our Discord to discuss them with our trading community!