Strips Trading FAQ
How is profit/loss calculated on Strips perpetuals
Total PnL has 2 components, for long positions:
Trading pnl = size * (exit rate — entry rate) / exit rate
Funding pnl = size * (oracle — entry rate), which accumulate every day
- A trader longs 90,000 with 9x leverage, using 10,000 collateral
- his entry level is about 4%
- his exit level is about 5%
- his unrealised trading pnl = (5%-4%)/5%*90,000= $18,000
- his funding pnl = (-10.04%-4%)*90,000/30 = -$9.8630
- After accounting for slippage and trading fees, if he closes his position his realised trading profit is $17,343.97
- Once he closes his position, he will also receive his collateral of 10,000 back. As a result, his cash balance = $27,334.11
- He made a profit of $17,334, a return of 173%
- If the trader gets liquidated, he will just lose all of his collateral, so the risk is capped at -100% while profits are not capped.
Comparison between perpetual interest contract vs. BTC perpetual futures:
- The funding rate is an incentive to bring the derivative price and spot price in line, but it doesn’t make it the same mechanically
- BTC perp funding payment is dependant on the distance between spot and perp price. Similarly, in strips perp, funding payment equals to the distance between floating and fixed rates, so its the same
- If fixed > floating, long IRS positions which pay fixed and receive floating, will have a net cash outflow which penalizes them for going in the opposite direction.
How is market fixed rate decided
- The market rate is calculated approximately longs/shorts ratio * initial market rate
- therefore, the more people that long, the higher market fixed rate, and the more people that short, the lower market fixed rate
What is the update frequency of floating rate
- For Binance BTC perp funding rate: every 8 hours
- For FTX BTC perp funding rate: every 1 hour
How does floating rate change affect my PnL? How does underlying BTC futures price affect my PnL?
- For long positions, because you pay fixed rate and receive floating rate, a higher floating rate will increases your profit.
- There isn’t a direct connection between BTC futures price and the pnl on Strips, however the BTC funding rate often increases when the price of BTC goes higher. Hence, there is a positive correlation.
Why market rate trades so differently from oracle floating rate?
- The market fixed rate is determined by the market supply and demand of buyers and sellers. The market fixed rate reflects the market’s long term expectation of future floating rates.
- Technically, the more traders come into the market to trade, the more likely for market fixed rate to show strong positive correlation with floating rate. Allowing more traders with various trading purposes is critical to build an efficient interest rate market and eventually achieve decentralisation of interest rates.
- Oftentimes BTC futures can trade MUCH higher than BTC spot, and that’s the trade that a lot of people did, and the price of the future is purely determined by the market, and not by the index, and thats because the futures price is determined purely by the market buyers and sellers for those futures, which is also called contango.
- In the short term, it depends on whether the market believes in the same as you, which is determined by market buyers and sellers.
- In the long term, it the market fixed rate and floating rate should converge closer.
Why Funding PnL is so small relative Trading PnL?
- Funding PnL is accumulated from the initiation of the contract until now, which can be a short period of time; trading PnL captures the immediate marked to market value. In the short run, trading PnL will dominate your PnL, while in the long run, funding pnl will dominate your PnL.
- The duration level of a perpetual IRS is (1+Yt)/Yt. For example, at 10% yield, the duration of perpetual IRS that pays 10% fixed yield annually will equal to 1.1/0.1= 11 years. However, at an 8% yield, it will equal 1.08/0.08= 13.5years. This principle makes it obvious that duration may differ based on the APY% level. The maturity of the perpetual IRS is infinite, while the duration of the instrument at a 10% yield is only 11 years. The cashflow early on in the life of the perpetual IRS, aka the trading PnL dominates the trading position PnL. Given the duration together with leverage, the actual amplification of perpetual IRS can be leverage*duration of the trading position.
Do you have any plan to increase the portion of funding PnL?
At the moment, we will observe trading patterns, user profiles as well as your feedback to decide if we want any other product that fits traders’ preferences better. We remain flexible and open to suggestions.
Why am I liquidated?
- Your position is liquidated when margin ratio = (collateral + PnL if you close your position now) / notional < 3.5%
- A higher leverage may give you higher profit with lower capital committed, but also higher chance to be liquidated if the market moves against you
Where to check the entry/exit levels, etc.
When you open positions, you can see your entry level on the confirm page:
Once you opened positions (even multiple), you can always see your average entry level
At the moment, we don’t show close price, but only show the PnL based on closing price, we will add to the next release.
Why can’t I open certain positions? What do some of the error messages mean?
If you see “Max notional was surpassed”, this is because your position is too big which add too much net exposure risk to AMM, based on AMM’s current TVL, it is unable to quote you a price and be your counterparty.
If on the confirm page, you see “estimated Margin is less than 3.5” then it means: your leverage is too high for such position, and your position will be liquidated very fast, and hence to protect traders, please try lower your leverage level.
Why my positions are netted?
- If you open a long position and go short on the same position, your long position will reduce by the same amount
- For example, if you open a long 10,000 USDC position, and then you short 5,000 USDC position, then you have bought 10,000 and sold 5,000, so your net position is long 5,000. Everything is settled like futures. It’s the same as Binance or ftx futures if you long 10k of BTC perps and then short 5k of BTC perps you will have a long position of 5k BTC perps.
- If you want to open two separate isolated long and short positions, you can do so with two different wallets, but note that you will need collateral on both positions
Where can I find my closed positions and liquidated positions
- We are currently working on providing Trading History which includes closed and liquidated positions for next release
- Meanwhile, you will be able to find a liquidated notice
Who is the counterparty? If the counterparty is the AMM and everyone buys, will it go bust?
- AMM is the counterparty for all trades.
- Our AMM has limits on the max position skew that traders can put on in order to minimise the risk of the AMM going bust. After testing for hundreds of market simulations and thousands of trades, we have put together what we believe the most robust risk limits for the AMM.
What is the incentive of holding STRP?
- Once we go live on mainnet, users will be able to stake USDC-STRP Sushi LP tokens into the AMM to earn trading fees, incentive rewards and more LP tokens.
- As an example, on day 1 of the trading competition, the AMM realized profits were: FTX BTC Perp AMM profit = $150,664 and Binance BTC Perp AMM profit = $580,024
- This $730,689 profit in USDC will be given out to all AMM stakers as staking profit. If you want to be part of the stakers to receive this USDC income, you must buy and stake STRP token into STRP-USDC LP tokens in order to stake.
- As the price of STRP increases, the liquidity rewards given out to stakers will be more valuable, and the APY will increase.