A Perpetual Contract is a derivative product that is similar to a traditional futures contract, there is no expiry or settlement, there is no time limit for position holding. Meanwhile, to track the underlying index price, the perpetual contract uses a funding cost mechanism to ensure that the price follows the underlying price closely.
MEXC provides users with Inverse Swap and USDT Swap.
The Market Mechanism of Swap
When trading perpetual contracts, a trader needs to be aware of several mechanics of the market. The key components a trader needs to be aware of are:
1. Position Marking: Perpetual Contracts adopts the fair price marking. The fair price determines unrealized PnL and liquidation prices.
2. Initial and maintenance margin: These key margin levels determine how much leverage one can trade with and at what point liquidation occurs.
3. Funding rate: Periodic payments exchanged between the buyer and seller every 8 hours. If the rate is positive, then longs will pay and shorts will receive the rate, and vice versa if the rate is negative.
Note: You will only pay or receive funding if you hold a position at the Funding Timestamp.
Traders can observe the current funding rate for a contract on the Trade tab under “Funding Rate”.
Historical rates are in the Funding Rate History
Funding costs are the core operating mechanism of MEXC Futures
1. Swap time : 04:00 (UTC), 12:00 (UTC), 20:00 (UTC)
2. The calculation formula of funding cost
Funding cost = funding rate * position value. if the funding rate is positive, the long users shall pay for the short users, while if the funding rate is negative, the short users shall pay for the long users.
Funding rate = Clamp(MA((middle price-index price)／index price - interest differential), a, b)
Middle price = (first buy bid + first sell bid) / 2
The funding rate will be calculated every minute, and the funding cost will be charged based on the funding rate calculated at 03:59 (UTC), 11:59 (UTC), 19:59 (UTC)
The position value has no correlation to the leverage rate. For example: if you hold 100 BTCUSDT contracts, you will receive or pay for funds based on the value of these contracts instead of how much margin you have allocated to the position.
4.The limit of funding cost
MEXC perpetual contracts cap the funding cost to ensure the use of the highest leverage. To do this, we added two limits.
The absolute upper funding cost is 75% of the (initial margin rate- maintenance margin rate). If the initial margin rate is 1%, the maintenance margin rate is 0.5% and the max. funding cost is 75% * (1%-0.5%) = 0.375%.
The relationship between MEXC perpetual contracts and funding cost
There is no funding cost in the MEXC perpetual contract, and the funding cost is charged by users. When the funding rate is positive, the long position pays for a short position. When the funding cost is negative, the short position pays for a long position.
The fee on MXC is as follows:
Maker fee Taker fee
Note: If the contract fee is negative, it will return the corresponding fee.
The explanation of funding cost:
Wallet balance= Deposit - Withdarwal + Realized PnL
Realized PnL=Total PnL of closing + Total fee + Total funding cost
Total equity=Wallet balance + Unrelized PnL
Position Margin = Funding for position, generally including all the user's positions (cross or isolated) - Please note that the position margin of the MEXC Futures only includes the user's isolated margin and the initial margin of the cross position, excluding floating margin under cross positions.
The margin of open orders= all frozen funds of open orders
Available = Wallet balance-Margin of isolated position- Initial margin of cross position-Frozen assets of open orders
Net asset balance = the funds available for assets transfer and new position open
Unrealized PnL = sum of all floating profits and losses