With a market order, the trader accepts the best available bid or offer price and the position will be matched instantly. In other words, the trader accepts the existing market price.
When you place a market order, it will automatically start at the best Buy/Bid or best Sell/Ask then automatically work its way through the order book until the order is filled.
When you have a market order that is larger than the best Buy/Bid or Sell/Ask, the system will buy everything available at the best price and then buy the next best price and so on until the order is filled.
With a limit order, the trader chooses the price at which they would like to be matched. With a limit order, the trade is only executed when the trader's preferred price is available.
When a trader chooses a bid price that is lower than the current ask (or they choose an ask price higher than the current bid), their order will enter the orderbook waiting to be matched. Conversely, if the trader chooses a bid price that is equal to or higher than the best ask (or they choose an ask price equal to or lower than the best bid), their order will get matched immediately.
To trade perpetuals on Kollider, a trader needs to be aware of the following terms:
The amount of contracts.
The mark price is a mechanism that ensures the futures price stays in-line with the spot price during the trading day, protecting from market manipulation.
On Kollider, the mark price is a reference price derived from the Kollider indices. It is used to determine if a position will be liquidated or not.
The index price is a volume weighted average price from multiple spot exchanges, it represents the market consensus price of the underlying asset.
In order to enter a position, 'collateral' is required. Kollider requires a trader to maintain a Bitcoin balance for an open position to act as collateral. This balance is a trader's initial margin requirement.
Currently, margin is isolated for each position on Kollider. This means that the maximum loss for a position is limited only to the initial margin and additional margin added. Adding additional margin to a position on Kollider reduces leverage and changes a position to a more favourable liquidation price.
Leverage allows a trader to gain exposure to a position without a larger initial margin requirement (less capital is required upfront). This allows a trader to magnify their gains, but also their losses.
When trading with leverage a trader makes profits or losses based on the notional value (notional value is the total value of the assets in a leveraged position).
Profits on the notional position size get added to the margin balance.
Losses get deducted from the margin balance.
The price of a perpetual is pegged to the underlying price using a funding rate mechanism. This mechanism results in a fee traders will pay or receive if they hold a position open at funding timestamp.
- On Kollider, the funding rate is the fee exchanged directly between buyers and sellers every hour.
If the perpetual swap is trading the price of the underlying price:
- The funding rate will be positive
- Long traders will pay short traders. This disincentivizes buying and incentivises selling, lowering the perpetual swap price to fall in line with the underlying asset.
If the perpetual swap trades the price of the underlying price:
- The funding rate will be negative
- Short traders will pay long traders. This disincentivizes selling and incentivises buying, raising the perpetual swap price to fall in line with the underlying asset.
Every hour the funding rate varies, meaning a trader with a Bitcoin perpetual position worth $1000 would pay or receive a funding fee of $0.25 if the funding rate was +/- 0.025%
UPNL: Unrealised Profit and Loss
RPNL: Realised Profit and Loss
UPNL Example: For a BTCUSD position, unrealised PNL is the difference between the average entry price and the mark price.
RPNL Example: For a BTCUSD position, realised PNL is the difference between the average entry price and the price of which the BTCUSD position was closed/sold at.
Liquidation of a position occurs when the mark price hits the liquidation price, it is how Kollider ensures a trader never has negative equity.
A liquidation on a position will occur when the margin level of the position falls below its maintenance margin level, when this happens the initial margin for the position is lost.
- When a position is liquidated, the position is closed, and its margin balance will be zero.