Perpetual Swaps

A Perpetual Swap is similar to a spot instrument, except that it is synthetic (no physical exchange), and allows for you to have leverage. It is also similar to a future in that it can diverge from the spot price (largely due to the leverage), but it does not have an expiration.

To ensure that a Perpetual Swap mimics as close to a spot price (A5XBT Index) as possible, a Funding Rate is used. Generally speaking, continued periods of Perpetual Swap trading over the Index will lead to a higher (positive) funding rate, whereby longs are charged for the benefit of the shorts (who receive funding payments). Likewise, when the Perpetual Swap trades for a sustained period below the Index, longs will receive funding payments at the expense of shorts.

Funding payments are calculated as per the Funding Rate formula.

Every 8 hours, a settlement will occur as per the prevailing funding rate, during which funds will either be paid or collected by any user that has an open position in the Perpetual Swap contract at that time.

Funding will happen 3 times a day at 00:00 UTC, 08:00 UTC, and 16:00 UTC.

Alpha5 employs an Amplified Funding Rate to allow for larger notional settlement amounts. The Interest Rate is a highly varied figure. There is no consistent overnight cost of USD (or equivalent) and BTC in the industry, and hence this figure can be a fabrication, or a reliance on concentrated source(s). As a result, Alpha5 will look to amplify this figure, to create opportunities between varied rates across the industry.

To do so, Alpha5 will reference the .XBTBON Index.

The Premium Index will be derived according to the following formula:

Premium Index [P] = ((Max (0, Bid Price - Mark Price) – Max (0, Mark Price – Ask Price))/Spot Price) + Funding Rate of Current Interval

Funding Rate [F] = Premium Index [P] + clamp(Interest Rate [I] – Premium Index [P], 0.10%, -0.10%)

Thus, if (I-P) is within +/- .10%, then F = P + (I-P) = I. If this is the case, F will be amplified.

  • If -.03% < (I-P) < .03%, F will be multiplied by 2

  • If -.06% ≤ (I-P) ≤-.03% or .03% ≤ (I-P) ≤ .06%, F will be multiplied by 1.5

  • If -.10% ≤ (I-P) <-.06% or .06% < (I-P) ≤ .10%, F will be multiplied by 1.25

Funding Rate Cap: (Initial Margin – Maintenance Margin) * 25%

The core funding rate (to which the amplification factor has been applied) is a market determined rate, and is calculated using best practices across various venues.

If the funding rate is positive, longs will pay shorts, and if it is negative, shorts will pay longs.

Example

It is 09:00. Alpha5’s amplified funding rate at 16:00 is going to be +0.15%.

Meaning, any long position will pay that amount, and any short position will receive the amount 
(prior to fees).

In this instance, if a trader is short 100,000 contracts, and the price of the XBT Perpetual Swap 
at 16:00 is $10,000, he is due to receive a gross funding payment of (100,000/10000)*.0015 = .015 BTC.

Contract Specification

Underlying Index A5XBT Index
Symbol XBTUSD
Contract Size 1 USD
Instrument Type Inverse
Initial Margin 4%
Maintenance Margin 2%
Price Quotation US Dollars per 1 BTC
Tick Size 0.5
P&L Settlement BTC
Expiration None
Position-Limit 5,000,000 contracts.
Fees 0bps Maker. 5bps Taker.

Mark Price Calculation

Funding Basis = Core Funding Rate * (Time Until Funding / Funding Interval)

Mark Price = Index Price * (1 + Funding Basis)

Note: Amplifier is not used in the Mark Price Calculation

To increase limits, please contact support@alpha5.io