The innovative derivative products, called perpetual swaps are trending across cryptocurrency exchanges. The latter of them Huobi also adds perpetual swaps into its platform.
The Singapore-based cryptocurrency exchange Huobi announces the launch of perpetual swap contracts on its platform today. According to the press release, perpetual swaps offers more opportunities for traders to hedge exposure and speculate on digital asset prices.
Eligible for arbitrage traders
The perpetual swap contract is similar to a traditional futures contract. It allows users to buy or sell assets at a specific price to hedge against market fluctuations.
The important difference is that a perpetual swap doesn’t have an expiry date, so there is no settlement. Perpetual contracts let users hold positions as long as they decide. The market value of a perpetual swap is maintained by requiring each trader to have sufficient underlying assets to execute their orders.
According to Ciara Sun, the Vice President of Global Business of Huobi Group the new product should be a convenient tool to arbitrage traders:
As we've recently experienced, sudden market swings can have a significant yet temporary impact on the broader financial ecosystem, but volatility itself is a very normal part of the market cycle. Perpetual swaps provide traders another tool in their arsenal to capitalize on market movements to create an arbitrage.
Arbitrage is a form of trading in which a trader seeks to profit from price differences of identical or related financial instruments. The price imbalance occurs when an asset is being differently priced by multiple exchanges.
Huobi trading platform currently only enables Bitcoin (BTC) swaps. Other major cryptocurrencies like Ether (ETH), Litecoin (LTC) and EOS are said to be added in the near future.
Supports x125 leverage
Perpetual swaps by Huobi are launched with higher leverage of 125, compared to competing digital asset exchanges, which mainly allow standard leverage of 100.
This means the traders are able to get higher deposits and expert higher profits, however the risk and amount of potential losses are also higher.
According to Huobi, the platform has implemented various risk control measures, such as a partial liquidation mechanism, which protects users by gradually reducing their position. Another risk control measure applied is a liquidation circuit breaker, which halts liquidation when the system detects an extreme deviations between the liquidation and market prices.
The cryptocurrency exchange also claims to have set up a $ 500,000 insurance fund for every token it supports to help prevent clawbacks from negative balances and guarantee user profits.