# Perpetual Swaps

Leverage, Profit and Loss

Perpetual swaps allow traders to contractually exchange the right to buy or sell an asset at a future time. When the quote asset (e.g., USD) is used as margin, perpetual swaps replicate the payoffs of trading base assets in the spot market (so-called Linear Perpetual Contract). Therefore, perpetual swaps allow traders to efficiently gain exposure to every digital asset through a single trading venue, without spot custody overhead and excessive fees.

- 1.trading with leverage is easily achievable
- 2.no custody of the underlying asset is necessary
- 3.the position can be open forever
- 4.shorting is easy

Trading with leverage involves increasing purchasing power to magnify profits and losses. At open, the initial collateral or margin is used to collateralize or underwrite a more sizable position. The ratio of the initial open interest to the margin is called leverage. For example, a trader using 4x leverage can trade contracts worth $400 with only a $100 margin. With borrowed money, traders can acquire more perpetual contracts than they could otherwise without leverage.

Even though leverage allows for increased purchasing power, the risk of liquidation increases with leverage in case of adverse price movement.

Please see here for more on Initial and Maintenance Margin Ratios, defining maximum initial leverage and leverage at liquidation.

**Unrealized PnL**is the profit and loss not yet realized from closing an open position. It is calculated as the difference between the entry and current index prices multiplied by the position quantity.

**Realized PnL**is the profit and loss that has already been realized from (partially) closing the position. It is calculated as the difference between the entry and exit prices multiplied by the quantity closed.

Last modified 7mo ago