The website name may be a tad deceiving, pertaining to be a shill fest of referral codes, but the team at crypto referral codes want to provide educational, engaging content on all manner of subjects in this fascinating and sometimes treacherous landscape. Opportunities are bountiful and we’re here to hold your hand when navigate this ever evolving space.

In return for using our referral codes and showing support for our content, we believe in giving back. So on top of the numerous discounts that we will be offering, you’ll have the chance to win up to 10% of our total rebates collected per month and the best thing… EVERYONE has a chance to win a slice of the pie. Further details on this feature will be released in the near future, but for the time being we will be working on delivering you the best content we can.  

Without further ado… Our first installment of an ongoing series on perpetual trading on-chain:

The Basics of Perpetual Trading

So I here you ask… “What is perpetual trading?.” Well, my attentive scholar, it is a type of derivatives trading that allows you, the trader, to speculate on the future price of an asset without having to own the underlying asset. Perpetual contracts don’t have an expiration date, meaning that you can hold a perpetual position for as long as you want (subject to borrowing fees), or until you close it.

Perpetual derived from perpetuitatem meaning uninterrupted duration. A little latin lesson for all you curious folks out there.

Now you’ve understood the simple concept of perpetual trading, we will introduce you to the two types:

• Margin 

• Isolated

Margin trading is a type of trading where you borrow money from the exchange to increase the size of your position, meaning that you can control a larger position with a smaller amount of capital.

Isolated trading is a type of trading where you allocate a specific amount of margin to each position. This means that if one position loses money, it will not affect the other positions in your account. 

To open a perpetual position, you’ll need to deposit some margin. The amount of margin required depends on the size of the position and the leverage that the trader is using. Leverage allows traders to control a larger position with a smaller amount of capital. However, it also increases the risk of losses. Live by the sword die by the sword

Once a position is opened, you can close it at any time by buying or selling the contract at that exact moment in time for the price offered. If the price of the asset has moved in your favour…Bingo…PROFIT. If the price has moved against you, sad times…loss inbound.

Perpetual trading can be a great way to profit from the volatility of the cryptocurrency market and oh my it can be volatile. However, it is important to understand the risks involved before you start trading.

We’ll talk in generalist terms here on how to open and close positions, to give you a basic understanding, but bear in mind each on-chain derivative exchange may look and feel different when opening and closing trades. 

To open a perpetual position, you will need to:

1. Choose an exchange that offers perpetual trading. There’s plenty of choice, GMX is the largest and most established… “V2 wen?” Two more weeks…

2. Deposit some margin into your account.

3. Select the asset that you want to trade. All on-chain derivative exchanges have the majors to trade such as BTC, ETH, AVAX, with others you may find FOREX markets and the odd meme coin to trade too.

4. Choose the leverage that you want to use. The max leverage available varies depending on what on-chain exchange you use. You don’t have to look far to find 1000x leverage for you degens 

5. Place a buy or sell order. Buy = Long, Sell = Short. You’ll typically pay opening and closing fees when interacting with the exchange.

To close a perpetual position, you will need to:

1. Place a buy or sell order that is opposite to the order that you used to open the position.

2. Wait for your order to be filled.

3. Your position will be closed and your profits or losses will be realised.

How to Use Leverage:

Leverage is a powerful tool that can amplify your profits or losses. When you use leverage, you are essentially borrowing money from the exchange to increase the size of your position. Nothing is free in life, so you’ll be paying a borrowing fee or funding rate, usually displayed as an hourly rate. This gives you the ability to control a larger position with a smaller amount of capital. So if you only have 50 bucks in your wallet and you want to make it feel like you’ve got 500 bucks for the day, 10x leverage anyone? 

However, it is important to remember that leverage also increases your risk. If the price of the asset moves against you, you could lose more money than you originally deposited. A simple example to illustrate the more leverage you use the higher the risk of liquidation:

Let's say you deposit $1000 into your trading account and you want to trade with 5 times leverage. This means that you can control a position worth $5000 with your $1000 deposit.The liquidation threshold for a 5 times leveraged position is 20%. This means that if the price of the asset you are trading moves against you by 20%, your position will be liquidated and you will lose your entire deposit.

Now, say you wanted to trade with 100 times leverage, your liquidation threshold would be 1% on a $100,000 position. One quick wick against you and bang…there goes your starting capital.  

The sensible stuff…How to Manage Risk:

There are a number of ways to manage risk in perpetual trading. These may include:

• Using stop-losses: A stop-loss is an order that automatically closes your position if the price of the asset moves against you by a certain amount. This can help to limit your losses. Remember crypto markets are volatile, when the markets move against you, they can move quickly.

• Using margin requirements: Most exchanges have margin requirements that specify how much margin you need to hold in order to keep a position open. If your margin falls below the requirement, the exchange may close your position for you.

• Using risk management software: There are a number of risk management software programs that can help you to track your positions and manage your risk. These are built into on-chain exchanges, as all positions are visible on the blockchain. 

This is our whistlestop tour on the basics of perp trading. It’s just the first stop of many, with future installments looking at trading strategies, detailed risk management techniques, the psychology of a trader and there may be a guest article or two from some of your favourite CT market analysts thrown in for good measure too. Oh and did we mention our in depth analysis series focused on, on-chain derivative exchanges????   

Stay up to date with all our latest content by following us @CryptoRefCodes on Twitter or is it X?