Does MTM Apply to Perpetual Swap Contracts in Cryptocurrency?
Yes, MTM is a core feature of cryptocurrency perpetual swap contracts. Although perpetual swaps do not have an expiration date, they use MTM to manage risk.
Instead of daily settlement, the MTM process often occurs more frequently, sometimes every hour. This is achieved through a funding rate mechanism.
The funding rate ensures the perpetual swap price remains close to the spot price.
Glossar
Perpetual Swap Contracts
Mechanism ⎊ Perpetual swap contracts, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, without an expiration date.
Perpetual Swap Price
Index ⎊ The perpetual swap price represents the market price of a perpetual futures contract, which is designed to closely mirror the price of the underlying cryptocurrency index.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.
High Funding Rate
Sentiment ⎊ A high funding rate, particularly a positive one, is a direct quantitative signal indicating significant net long exposure across the perpetual futures market.
Funding Rate Mechanism
Mechanism ⎊ Funding Rate Mechanisms within cryptocurrency derivatives represent periodic payments exchanged between traders holding opposing positions in perpetual contracts, designed to anchor the perpetual contract price to the underlying spot market.
Perpetual Swaps
Definition ⎊ Perpetual swaps are a type of derivative contract, highly popular in cryptocurrency markets, that allows traders to speculate on the future price of an asset without an expiration date.