How to Trade Decentralized Perpetual Swaps on MCDEX
Learn what perpetual swaps are and how to trade these crypto derivatives on MCDEX.
Perpetual swaps have become one of the most popular financial products to trade cryptocurrencies as they offer crypto trades the opportunity to enter large positions with little capital.
But before you start trading perpetual swaps, you need to understand how they work and where you can securely trade them.
What are Perpetual Swaps?
Perpetual swaps in the global crypto markets are derivatives that let traders speculate on the price movement of cryptocurrency without worrying about securely storing the asset or swap contract expiration dates.
In perpetual swaps, traders don’t own the underlying asset itself. Hence, they don’t have to deal with the technical risks involved in holding a cryptocurrency. They are somewhat like futures contracts where traders agree on the future price of an asset with the ability to leverage positions.
But unlike futures contracts, where traders have to roll over contracts periodically as they approach expiration, traders can hold to their positions as long as they want while avoiding basis risk. Hence, the price of perpetual swaps must be closely pegged to the spot price of the underlying cryptocurrency.
In a futures contract, this isn’t necessary since the contract’s value and the underlying asset’s price converge as the expiration date approaches. To keep perpetual contracts pegged to their underlying assets, exchanges use a funding rate mechanism.
The funding rate mechanism ensures periodic payments are made to traders on either long or short positions by comparing the price difference between the perpetual contract and the spot price of the underlying asset it tracks.
Suppose that the price of a perpetual swap contract is higher than the spot price of the underlying asset, the funding rate is positive. Traders holding long positions will have to pay a small fee to those on short positions. So also, a perpetual swap contract trading lower than the spot price of its underlying asset results in a negative funding rate. And traders on short positions will pay a fee to those holding long positions. The funding rate payments are made periodically.
In the absence of a funding rate mechanism, a perpetual contract’s price will diverge from the spot price of its underlying asset.
In summary, perpetual swaps enable traders to enjoy the benefits of trading a futures contract while at the same time avoiding the hassle of contract expiration.
Perpetual swaps were initially traded only on centralized exchanges where users are required to complete KYC (Know Your Customer) verifications and need to trust the change to keep their funds safe.
As a result, the need for decentralized exchanges where traders can trade perpetual swaps in a decentralized, transparent, and immutable manner without going through centralized exchanges arose.
That’s where MCDEX comes in.
Introducing MCDEX: The Next-Gen Decentralized Perpetual Swap Exchange
MCDEX (Monte Carlos Decentralized Exchange) is a decentralized crypto derivatives exchange where users can trade perpetual swaps with access to top market liquidity and up to 15× leverage.
Perpetual contracts on MCDEX follow the same design as on centralized exchanges with added features including on-chain funding rate through the use of a highly capital-efficient AMM (Automated Market Maker) and a governance token.
The AMM works in a way where users can trade even when there’s no trader on the other end as it makes use of a liquidity pool instead of traditional order books.
Generating funding rates, on-chain liquidity, and full decentralization are all achieved through the AMM. And since all transactions take place on-chain (making them immutable and transparent), users can trade without the fear of a possible price manipulation that may occur in centralized exchanges.
One of the most important features of MCDEX is the permissionless feature that allows anyone to create perpetual contracts, hence making the market more diversified.
MCDEX AMM provides liquidity not just for a particular contract but for any perpetual contract created by users.
Furthermore, MCDEX features an MCB token, which is the governance token of the protocol. It gives users access to be part of the MCDEX DAO that is responsible for constantly improving the protocol and running perpetual swaps.
Although most decentralized exchanges usually have a poor user interface, MCDEX is simple and easy to use.
MCDEX is built on Arbitrum Rollup, an Ethereum layer 2 scaling solution, it provides users with low gas fees, high transaction speed, and the same security as the Ethereum network. Additionally, the DeFi app also runs on Binance Smart Chain.
How to Trade Perpetual Swaps on MCDEX
Trading perpetual swaps on MCDEX is simple. With the following steps, you are on your way to making your first trade.
Firstly, you’ll have to access the MCDEX website at https://mcdex.io. This website will take you to the homepage of MCDEX. You can view it directly in the Trust Wallet DApp Browser if you have an Android phone or type the URL into a web browser if you have an iPhone.
Next, click on the “App” button. This will take you to the trading interface.
Click on “connect your wallet”. If you are using the Trust Wallet DApp Browser, you will have to connect by switching to the blockchain network you want to use (Arbitrum or Binance Smart Chain) to connect. If you are using an iPhone, you will have to connect using WalletConnect.
After connecting your wallet, you are set for trading perpetual swap contracts on MCDEX.
Choose the contract you are interested in. There are two contract types — Certified and Uncertified. Certified contracts are contracts created by MCDEX DAO, while Uncertified contracts are created by users. The info button at the top right corner of your screen reveals the full information of a contract.
After choosing the contract to trade, adjust leverage to your choice (You can use up to 15× leverage).
Input your desired amount of collateral. Then, choose your position by clicking on long (buy) or short (sell) using market, limit or stop order.
And that’s it. With these few steps, you have made your first perpetual swaps trade on MCDEX.
Trading perpetual swaps provide you with the opportunity to boost your trading revenues using leverage, but the risks are also high as you can lose your entire invested capital if the market moves against you sharply. It’s important to do your own research and ensure you fully understand these financial products before you start trading them.