Perpetual futures are futures contracts with no maturity, as opposed to dated futures, which expire at a pre-set date and time, for example, every month or every quarter. Any position in a perpetual future thus stays open until the trader decides to close the trade by executing an offsetting trade, or until the trade gets liquidated by EQONEX.
As perpetual futures have no set expiry they are, in a way, similar to a margin-based spot market. To ensure the perpetual prices are kept in line with the underlying spot prices the contracts have an exchange of payment between buyers and sellers depending on where the future is trading relative to the underlying spot price. On EQONEX, we refer to the spread between spot and perpetual futures prices as Basis and the resulting exchange of payment as the Basis Payment.
Other platforms may refer to this value as funding. Basis should be seen as the equivalent practice on EQONEX. However, as we currently do not include any cost of funding the trade in this calculation, we believe it to be misleading to call it funding and hence it is defined as Basis.
On EQONEX the Basis is calculated and settled in USDC every 8 hours at 04:00, 12:00, and 20:00 UTC.
In order to calculate the Basis of the perpetual future, we compare the difference between the Last Traded Price of the EQONEX Spot contract and the Last Traded Price of the EQONEX Perpetual contract over the past 8 hours:
Basis = 8-hour TWAP of (Last Traded Spot Price - Last Traded Perpetual Price)
The TWAP stands for time-weighted average price and is based on the average of the open, high, low, and close of each 1-minute bar.
The Basis is capped/floored at +/- 0.375% * Perpetual Futures Mark Price at the Basis calculation time to avoid instantaneous liquidation for positions with high leverage.
For example, if the Basis has been calculated as 40 USDC and the current Perpetual Futures Mark Price is 10,000 then the Basis would be capped at 37.50 USDC for every 1 Perpetual Future held. For a trader wishing to utilize the maximum leverage on EQONEX the largest position size they could take (based on the leverage table) is 10,000, which is the current price of 1 contract. The Initial Margin for this trade would be 80 USDC. The Margin Liquidation Trigger would be 40 USDC. If the trade were to occur right before a Basis Payment event, then if the Basis was allowed to be 40 USDC or higher positions could be instantly liquidated. The cap prevents this.
Note that the Last Traded Price may be different from the Mark Price used to value futures contracts during trading hours, which is bound by the Exchange Index to protect market participants against manipulative trading.
For more information on marking, see Marking.
The Basis Payment is an exchange of payment between long and short holders of the perpetual contract, based on the calculated Basis:
Basis Payment = Position Size * Basis
The Basis and Basis Payment are defined from a long holders' perspective such that when Last Traded Spot Price < Last Traded Perpetual Price, every long holder of the contract pays the short holders of the contract a value equal to their Position Size times Basis.
For example, you sold 2 BTC Perpetual Futures and the Last Traded Price of the Perpetual Future has been trading $5 above the Last Traded Price of spot for the past 8 hours. Assuming the basis payment cap/floor is not reached, you will receive a total Basis Payment of $10.
You will only pay or receive the Basis Payment if you hold a position in the contract at the time of Basis calculation.
For further assistance or more information, please contact our Customer Support team via email@example.com or click on the chat widget at the bottom right-hand side of the EQONEX page.