Perpetual contracts, also known as crypto-backed contracts, require traders to use the underlying asset (e.g., BTC, ETH) for both position opening and final settlement. Profits and losses are settled in the same asset.
Key Features of Reverse Perpetual Contracts
- Optimized for Long Positions
When using BTC as collateral to long BTC/USDT, earning more BTC due to price increases amplifies gains, while losing BTC during price drops magnifies losses. This makes reverse contracts ideal for bullish markets. - Ideal for HODLers
Traders who prioritize accumulating coins over price fluctuations benefit from earning additional coins through both long and short positions.
Example: Bybit’s BTCUSD Reverse Perpetual Contract
- Contract Value: Each contract represents $1 USD, enabling trades as small as $1.
- P&L Calculation:
Long Position Profit = Contract Quantity × (1/Entry Price − 1/Exit Price)
Scenario:
- Entry: Buy 10,000 contracts at $8,000/BTC → Short $10,000 USD + Long 1.25 BTC.
- Exit: Sell at $12,500/BTC → Long $10,000 USD + Short 0.8 BTC.
- Profit: 1.25 BTC − 0.8 BTC = 0.45 BTC.
Margin Formula: Initial Margin = Contract Quantity / (Order Price × Leverage)
Example: 100x leverage on 100 BTC position → 1 BTC margin required.
FAQs
Q1: Why use BTC as collateral in reverse contracts?
A: It aligns settlement currency with the traded asset, eliminating USD conversion risks for crypto-focused strategies.
Q2: How does leverage impact margin in perpetual contracts?
A: Higher leverage reduces upfront margin but increases liquidation risk. Always check exchange-specific risk limits.
Q3: Can I trade perpetual contracts with stablecoins?
A: Yes, but via USDT-margined contracts. Reverse contracts require the underlying crypto (e.g., BTC, ETH).
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Note: All examples exclude fees and funding rates for simplicity.