A Beginner's Guide To Crypto Futures Trading

Why Invest in Cryptocurrency Futures?

Crypto Futures Trading Explained

How Do Crypto Futures Work?

Calculating P&L on Crypto Futures

How to Maximize Your Investment by Trading AAX's Crypto Futures Contracts

No expiry

Crypto Futures Funding rate - Premium

Crypto Futures Funding rate - Interest

BTC Inverse Futures Contracts

USDT Vanilla Contracts

Leverage Crypto Futures

How AAX handles liquidation

Being liquidated

How AAX's Default Fund is here to help

先物過去データ

Crypto Futures Trading Guide

Take your Cryptocurrency investment to the next level with futures trading

A Beginner's Guide To Crypto Futures Trading

Why Invest in Cryptocurrency Futures?

If you have a view on the market but lack capital, investing in crypto futures is the best way for you to secure a handsome profit and grow your financial portfolio. Reward yourself by staying true to your beliefs and achieving more with less.

AAX understands that users want to maintain the maximum flexibility possible with their digital currency investments. To prepare users for any kind of market condition and for them to fully benefit from crypto, AAX offers futures contracts with up to 100x leverage, with no expiry.

Let's take a look at how it works.

Crypto Futures Trading Explained

Similar to spot trading, traders post on the order book the price at which they want to buy or sell a given digital asset. The major difference between spot trading and crypto futures trading is that investors can make use of leverage, and they also need to decide whether to go long or short.Leverage on AAX can go up to 100x. Depending on their investment strategy, traders can decide how much leverage they want to use.

How Do Crypto Futures Work?

In the crypto futures market, traders are able to profit from bets made for and against the market. For example, acquiring long contracts on an asset indicates a trader's confidence that the value of an asset is going to increase. Traders can also bet against the market by going short if he or she anticipates that the value of the asset is going to drop

Crypto futures contracts allow traders to hedge the market by having an offsetting number of futures contracts. When there is a gain made inthe crypto futures contract, there is subsequently a loss from the spot market. Similarly, when there is a gain on the spot market, there is a loss in the futures contract. With such a gain and loss offsetting each other, the hedging effectively locks in the acceptable, current market price.

Traders can exit the market by closing their position. When the position is closed, the Profit and Loss (P&L) will be realized. Closing a position can be achieved by taking a trade in the opposite direction of its existing position.

Calculating P&L on Crypto Futures

The average trading price at which a trader enters the crypto futures market is the entry price. The Profit and Loss of the position is realized when the trader places a contract order and partially or fully closes the position. This is known as the realized Profit and Loss total.

For an inverse crypto futures contract like BTC/USD in which the settlement currency is BTC, if a trader goes long of 1000 contracts for BTC at Price = $30,000 (entry price), then closes out 600 contracts at Price = $40,000 (BTC market price), realized PnL = 600*(1/30,000-1/40,000) = 0.005 BTC (Profit) with a long exposure of 400 contracts.

Depending on the leverage the trader chooses to have, a liquidation price is determined. The higher the leverage, the closer the liquidation price will be to the entry trading price. We will explain more on how liquidation on AAX works in the section below.

How to Maximize Your Investment by Trading AAX's Crypto Futures Contracts

No expiry

The crypto futures contracts of AAX are perpetual contracts, meaning they do not have an expiry date. Because of this feature, AAX's crypto futures contracts auto-resets every 8 hours with a funding rate mechanism paid between Long and Short positions. This ensures that the price is anchored to the spot rate. This will enable traders to maintain their positions.

Crypto Futures Funding rate - Premium

Let's learn about how Premium works on AAX. Crypto futures' trading price on AAX may differ from the spot market index price due to differences in market forces. As a result, traders in both long and short positions have to be compensated according to the actual market prices in the spot market.

In this case, AAX's crypto futures contracts auto-resets every 8 hours depending on the AAX price and index price at the time. Premium is calculated on the unrealized P&L total, because the trader has not yet closed the position. The unrealized P&L represents the trader's position at the time the rollover takes place.

Crypto Futures Funding rate - Interest

Now let's talk about interest. Adopting a long position in BTC/USD, for example, is equivalent to a trader borrowing USD to buy Bitcoin in the spot market. The same is true for short positions. Because the borrowing cost of BTC, the base currency, is much higher than the borrowing price of USD, the quote currency, it will be a no-brainer for traders to go long - to take advantage of the lower interest rate when borrowing USD to buy BTC.

In order to maintain a balanced supply of long and short futures contracts, AAX's crypto futures contracts auto-reset every 8 hours so that traders in short BTC positions can pay those in long BTC positions. This is known as interest.

Every contract traded on AAX consists of two instruments: a Base currency and a Quote currency.

Take BTC/USD as an example. Assuming BTC rate = 0.025% (per day), USDT rate = 0.001% (per day), funding_period = 3 (8 hours , 3 times a day)

Delta_Interest= (Quote Currency Rate - Base Currency Rate) / funding_period
= (0.001% - 0.025%) / 3
= - 0.008%

Funding takes into account the differences between AAX's crypto futures prices and spot prices (Premium), as well as the differences in interest rate. This ensures that the long position traders are able to pay the short position traders and vice versa, depending on market conditions.

Now, the biggest concern for traders is whether they need to pay interest or whether they are eligible to receive interest. Simply put, when the Funding is positive, longs pay shorts. When it is negative, shorts pay longs.

For example:
A trader has a long position of 10000 contracts. AAX price = 4000 and Index price = 4100. Interest
rate difference = - 0.008%

Rate payable by long trader = 10000 x ( (1-0.00008) / 4100 - 1 / 4000 ) = - 0.061 BTC

Long traders should therefore receive 0.061 BTC in this funding interval.

Keep in mind that AAX does not charge any fees on funding. Transactions are executed directly between one trader and another, on a peer-to-peer basis.

BTC Inverse Futures Contracts

On AAX, we offer the option of trading inverse crypto futures contracts, with Bitcoin set as the base currency. This option is also dubbed “BTC settled contract”. When trading inverse crypto futures contracts on AAX, users will gain/lose BTC, depending on their long/short position.

Simply put, depending on the outcome of a long or short call, the investor will either gain more Bitcoin or lose some BTC funds.

USDT Vanilla Contracts

Vanilla contracts on AAX are crypto perpetual futures contracts that are settled in USDT. On AAX, there are currently over 10 USDT vanilla contracts offered, and they include BTC/USDT, BCH/USDT, ETH/USDT, COMP/USDT, LINK/USDT, XRP/USDT, ADA/USDT, SOL/USDT, DOGE/USDT, DYDX/USDT and MATIC/USDT.

Both Inverse and Vanilla crypto futures contracts on AAX can be traded with a leverage of up to 100x, which brings us to the next part.

Leverage Crypto Futures

Essentially, traders on AAX are able to gain a maximum of 100X risk exposure with X amount of capital.

For example, a client enters 1000 contracts of BTC/USD, at a price of $4000 USD. The notional value in BTC is 1000 / 4000 = 0.25 BTC. With a 10x leverage, the trader will only need to deposit 0.25 / 10 BTC = 0.025 BTC to enter the position.

How AAX handles liquidation

Being liquidated

For example, a trader takes on 100x leverage and goes long for 1 contract, at $100.00 USD with an initial margin of $1.00. The maintenance margin is set at 0.5%. In this case, the liquidation price is $99.50 USD and the bankruptcy price is set at $99.00, without taking commission into account.

When the marked price in crypto futures contract goes down to $99.50, the trader position is liquidated by a market sell order.

If the liquidation order is filled at $99.40 due to the use of market order, the remaining margin of $0.40 USD will go to AAX's Default Fund.

How AAX's Default Fund is here to help

Following the example above, the bankruptcy price is $99.00 since the maintenance margin is $1. However, in a weak market, the value of an asset can drop below the bankruptcy price. In this case scenario, the Default Fund will pick up the loss. If the liquidation order is filled at $98.90, the price risk of liquidation is taken up by AAX's default fund, meaning that the default fund will take up the loss of $0.10.

Currently, AAX does not impose auto-deleveraging. This ensures a fair trading venue for all clients and it means that when a client is being liquidated, there is no impact on other investors.

As expected, traders with lower leverage will be less vulnerable to being liquidated.

For example, let us take a trader that adopts 10x leverage and goes long for 1 contract at $100.00 USD. The margin is $10.00 USD and the maintenance margin is set at 0.5%. In this case, the liquidation price is $90.5 and the bankruptcy price is set at $90.00.

The above example demonstrates how AAX handles liquidation. Actual figures on marked prices, liquidation prices, and bankruptcy prices will vary depending on the investment strategy of the trader.