Xena Listed Perpetuals are leveraged instruments launched on Xena Exchange. They are contracts between a buyer and a seller to exchange the difference in value of a particular instrument between when the contract is opened and when it is closed. The contracts launched on Xena Exchange mirror the price of the underlying asset, be it BTC or an index, such as BTC volatility. Xena Listed Perpetuals have the following advantages:
They do not expire, which gives them an advantage over futures.
They can be traded with up to 20x leverage.
Trading perpetuals involves safe liquidation and mechanisms to protect against manipulation.
Xena Listed Perpetuals price formation
Xena Listed Perpetuals mirror the price of the underlying asset and are subject to regular clearings. Special mechanisms are involved to keep the prices of perpetuals close to the prices of their underlying assets.
Positions are marked using the value of the underlying index
For example, the average price of Bitcoin traded on three major exchanges (Bitstamp, CoinBase Pro, and Kraken), which is used as the underlying index for the XBTUSD Contract, is currently $3,650. A trader opening a long position in XBTUSD at, say, $3,700 would immediately have an unrealized loss of $50 for each 1 BTC of his position value. If he knows this, he will not accept such a high offer and not enter into such a trade.
Hourly clearing based on the underlying index price
Each hour, the unrealized profit and loss of all active positions is settled to the traders' accounts.
The arbitrage between a Xena Listed Perpetual and the underlying instrument ensures both markets remain at or close to parity. This arbitrage is based on the opportunity for traders to profit whenever the two markets are out of line.
For example, assume that Bitcoin is trading at $3,650 bid and $3,652 ask. If the Xena XBTUSDT Listed Perpetual is offered below the bid (e.g., at $3,640), a trader can profit from buying the Xena XBTUSD Listed Perpetual at this lower price and selling the real Bitcoin at $3,650.
Premium payments paid at each hourly clearing
The premium is calculated as the difference between the volume-weighted average bid and ask price of a Listed Perpetual and the price of the underlying index. If, at the time of clearing, the VWAP of the bids and asks of the XBTUSD Listed Perpetual is $3,700 and the index price is $3,650, all holders of long positions will be charged $50 for each 1 BTC of the position value, and all holders of short positions will be paid the same amount.
Knowing that, holders of long positions will tend to close their long positions by selling the contracts on the market, thereby pushing the price of the Listed Perpetual down. If the Listed Perpetual is traded below the index, the holders of short positions will pay to the holders of long positions and thus will try to close their short positions by buying on the market, pushing the price of the Listed Perpetual up. The difference must exceed a certain threshold for the Premium to be charged and paid.