Trading on Freestyle

Key Trading Concepts

This section outlines essential terms and concepts fundamental for trading on Freestyle. Understanding these definitions will help users navigate the platform more effectively and make informed trading decisions.

  • Market Order: An order to buy or sell immediately at the current market price.
  • Limit Order: An order to buy or sell at a specific price or better.
  • Margin Trading: Trading using borrowed funds from a broker, enabling larger positions than the trader's own capital would permit.
  • Leverage: Using various financial instruments or borrowed capital to increase the potential return of an investment.
  • Liquidation: The process of closing a position if the margin level falls below the required threshold, to prevent further losses.
  • Slippage: The difference between the expected price of a trade and the price at which the trade is executed.
  • Funding Rate: A payment based on the difference between perpetual contract markets and spot prices, anchoring the perpetual price to the spot price.
  • Oracle: Services that fetch and verify external data sources, such as price information, for blockchain networks to support smart contracts.
  • Open Interest (OI): The total number of outstanding derivative contracts, such as options or futures, that have not been settled.
  • Maintenance Margin (CVA): A security deposit required during liquidation to compensate the counterparty for potential losses or risks.
  • Long Position (Long): Buying with the expectation that the asset will increase in value.
  • Short Position (Short): Selling an asset with the intention of buying it back at a lower price in anticipation of a market decline.
  • Platform Fee: A fee applied only when opening trades.

Collateral & Cross-Margin Accounts

In Freestyle, managing collateral efficiently is crucial for optimizing trading strategies. Here’s how collateral and cross-margin accounts function:

  • Collateral: Traders must deposit assets that serve as collateral for opening positions. This collateral ensures that there is security against potential losses, and different asset types can be used based on the platform's accepted standards.
  • Cross-Margin Accounts: These accounts allow traders to use all deposited assets as a single pool of collateral. This is beneficial in managing risks across multiple positions. If a position moves unfavorably, collateral from the pool is used to maintain margin requirements, enhancing flexibility and preventing early liquidations.
  • Advantages: Using cross-margin can significantly reduce the chances of liquidation for individual positions because it spreads the risk across all open trades. Additionally, this system can lead to more efficient use of capital, allowing traders to maximize their potential return on investments.

These mechanisms provide traders with flexibility and security, enabling them to manage multiple positions effectively and with potentially lower risk.

Funding Rates

Funding rates on Freestyle play a crucial role in maintaining the equilibrium between perpetual contract prices and their underlying market values. Here's an overview of how funding rates function:

  • Funding Rate Mechanism: Funding rates are periodic payments made by traders depending on their position—long or short. If the rate is positive, long position holders pay short position holders, and vice versa. This mechanism ensures that the price of the perpetual contracts aligns closely with the actual market price of the underlying asset.
  • Calculation: The funding rate is typically calculated based on the difference between the perpetual market price and the spot price index, adjusted by intervals set by the platform. This ensures that the rates reflect current market conditions.
  • Impact on Trading: Regular funding payments help mitigate the risk of price manipulation and excessive deviation from the market price of the underlying asset. Traders need to be aware of the funding rate schedule and the current rate to manage their trading strategies effectively, as it can influence the profitability of holding positions over time.

This system is designed to promote fairness and stability in the trading environment, making it essential for traders to understand and monitor funding rates regularly.

Account Health and Management

In Freestyle, maintaining account health is critical to avoid liquidations. Here’s how these elements are managed:

  • Margin Requirements: Traders must maintain a minimum margin level to keep positions open. This is known as the maintenance margin.
  • Liquidations: If the market moves against a position and the account's margin balance falls below the required maintenance margin, the position may be subject to liquidation. This process is automated to mitigate potential losses.
  • Margin Management: Freestyle offers tools to help traders manage their margin more effectively, such as real-time notifications and risk management features that alert traders if their margin is close to insufficient levels.
  • Account Health: Continuous monitoring of account health is vital. Traders can view details related to their account status, including current margin levels, potential liquidation prices, and overall exposure.

Understanding and managing these aspects effectively ensures that traders can operate within safe limits, minimizing the risk of unexpected liquidations and optimizing their trading strategy.

Advanced Trading Features

Freestyle incorporates advanced trading features to enhance strategy execution and risk management:

  • Take Profit and Stop Loss: These tools allow traders to set automatic closures for positions at specified profit or loss thresholds, helping to lock in gains and limit losses.
  • Unrealized Profit and Loss (UPNL): Freestyle provides real-time tracking of UPNL, which helps traders understand the performance of their positions without closing them.
  • Open Interest and Market Activity: The platform displays live data on open interest, which indicates the total number of outstanding positions that have not been settled, alongside detailed market activity metrics.

These features equip traders with the necessary tools to make informed decisions, manage risks effectively, and optimize their trading strategies on the Freestyle platform.