Huobi DM, a top digital assets derivative platform and unit of Huobi Group, has added a perpetual contract swaps feature on its exchange.
Perpetual swaps is a new derivative product that allows users to enjoy minimum risks and leverage arbitrage opportunities in erratic market conditions. Huobi DM made this announcement via a tweet on March 30.
What's next for Huobi Futures?
The launch of Huobi Perpetual Swaps!
on March 31, at 9:00 (GMT+8)!
Get your shot at $50 by:
🚀 tag 5 friends
— Huobi (@HuobiGlobal) March 30, 2020
Previously, Huobi provided crypto futures which expired on a weekly, bi-weekly and quarterly basis.
Speaking on the launch, the Vice President of Huobi Group, Ciara Sun, disclosed that market volatility had the potential to cause a serious impact on the entire state of the exchange ecosystem. However, most of such effects are short-lived. Sun went on to add that perpetual swaps would allow traders to harness benefits from these market fluctuations.
Alongside perpetual contracts swap, Huobi also plans to support inverse perpetual swaps, otherwise known as coin-margined perpetual swaps.
How it works
To participate in perpetual swaps, interested users will need to choose an initial margin serving as an anchor point when selecting a position. Each position is then tethered to the spot price of the connected asset by a funding mechanism. The funding mechanism settles a contact every eight hours.
There is the option to withdraw profits after settlement. Moreover, losses incurred may lead to a sharp decline in the margin ratio. In the event of this decline, Huobi’s new partial liquidation tool can protect traders by deliberately decreasing a user’s position instead of liquidating it. However, if unfavorable market conditions persist, a dedicated circuit breaker would be in place to prevent further liquidations.
To guarantee profit, Huobi has also set up a $500,000 insurance fund for each coin.
Perpetual contracts and traditional future contracts
Perpetual swaps and traditional futures contracts are quite similar. They both allow users to buy or sell assets at a specific price to mitigate the effects of market fluctuations. A major distinguishing factor is that traditional future contracts have pre-determined expiry dates. In contrast, users can hold perpetual contracts as long as they wish.
Huobi DM currently supports only Bitcoin (BTC) swaps. However, the derivative platform has plans to add other cryptos like Ethereum (ETH), EOS, Litecoin (LTC) soon.
Another major feature of Huobi DM perpetual contract swap is the minimization of risks. Up to 125x leverage is another key component of Huobi’s perpetual swaps trading feature. Essentially, this provides the users with much-needed trading strategy flexibility.
It is pertinent to note that Huobi recently launched its futures liquidation mechanism. Also, the recently launched Huobi Lite, a crypto trading app, is looking to penetrate the Southeast Asian market.