Perpetual contracts have become a well-liked tool for traders wishing to leverage their positions without being constrained by expiration dates in the quickly developing field of cryptocurrency trading. The well-known bitcoin derivatives exchange Bybit has unveiled a cutting-edge tool known as “Perp Protect” to improve trading and give users more security. Let’s explore the details of Perp Protect and see how it can benefit traders.
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What is Bybit?
Bybit is one of the world’s most visited crypto exchange platforms. It has the vision of “unleashing the full potential of crypto Web3 with next-generation tools, support, and opportunities”. With over 20 million users, Bybit is regulated by the Virtual Assets Regulatory Authority, Dubai; The Cyprus Securities and Exchange Commission, and Astana Financial Services Authority, Kazakhstan.
The exchange platform has many services, including One-Click Buy, P2P Trading, and referral programs. With the help of many Bybit products, you can trade in crypto and earn profits.
Now, let’s first look at the industry for crypto exchanges introduced by Bybit: Perp Protect.
What is Bybit Perp Protect?
Perp Protect is an automated risk management tool introduced by Bybit that hedges risks in both long and short positions by acquiring option contracts automatically. It offers downside protection to its users without compromising their investment strategy and suggests option contracts that protect against price action that doesn’t go in their favor.
The intelligent algorithms of Perp Protect evaluate the market conditions regularly to offer optimal plans for protection and costs as low as 2% of the user’s initial margin.
Bybit Perp Protect: Features
Here are the main features of Perp Protect.
- Intelligent Mechanism: With the help of advanced algorithms, evaluating factors like initial margin, leverage, and the current market asset price, Perp Protect delivers intelligent recommendations to its users.
- Protected Contracts: Perp Protect is currently extending its protective coverage to various widely known crypto contracts, including ETHUSDT, BTCUSDT, ETH-PERP, and BTC-PERP perpetual contracts.
- Cost-Effective: Perp Protect protects its traders for their positions at a relatively lower cost than potential losses.
- Exclusive for Unified Trading Account (UTA) Users: Currently, Perp Protect is exclusively available to UTA users utilizing the Cross Margin mode.
Also Read ➤ ➤ Bybit Review – Trading Fees, Margin Trading, Mobile App
How Does Perp Protect work?
Perp Protect is a protective strategy that you establish by paying a premium to get USDC Options which are recommended by the intelligent system of Bybit.
You can achieve a Perp Protect in both a Long position and a Short position. For a Long position, you need to buy a Put Option whereas for a Short Position, you have to buy a Call Option, both at a predetermined price and date in the same quantity as your perpetual position.
At the time of expiration, you get a chance to receive a payoff through the exercise of the Option if the trigger condition is met.
There are two possibilities that you can face at the compensation/expiration time:
- Trigger condition not met: In this case, the Option will not be exercised and hence you will not receive any compensation. This means the market is currently moving in a favorable direction for your perpetual position. If there is profit upon closure of the perpetual position, then the maximum loss that is incurred is the cost that was paid to obtain the Perp Protect.
- Trigger condition met: If this case happens, then the Option will be exercised and you will receive the compensation in your Unified Trading Account. Your overall loss will be reduced from the Perpetual position if the market is not in your favor.
Bybit Perp Protect: Compensation Calculator
The compensation is the strike price less the settlement price at compensation time. The settlement price of the underlying asset is calculated using the Average Index Price before 30 minutes to the time of compensation.
Here is the formula to get the compensation amount.
1. For Prep Protect (Long)
- Your Profits/Losses = Max { 0, (Put Option Strike Price – Settlement Price of Underlying Assets)} × Position Size of Purchased Put Option – Put Option Premium
- Compensation Amount = Max { 0, (Put Option Strike Price – Settlement Price of Underlying Assets)} × Position Size of Purchased Put
- Option Option Premium = Cost (Perp Protect) = Market Price of the Purchased Put Option × Position Size of Purchased Put Option.
2. For Prep Protect (Short)
- Your Profits/Losses = Max { 0, (Settlement Price of Underlying Assets – Call Option Strike Price)} × Position Size of Purchased Call Option – Call Option Premium
- Compensation Amount = Max { 0, (Settlement Price of Underlying Assets – Call Option Strike Price)} × Position Size of Purchased Call Option
- Option Premium = Cost (Perp Protect) = Market Price of the Purchased Call Option × Position Size of Purchased Call Option
Conclusion
Perp Protect is a great feature and can help traders to hedge the risks in trading crypto. By leveraging Perp Protect, traders can anticipate market volatility and stay ahead of the curve while securing their perpetual positions. Even for beginners, Perp Protect is a reliable source to explore the world of perpetual trading while minimizing anticipated losses. In conclusion, we can say that this user-friendly product of Bybit can ensure maximum benefits with minimum losses.
To learn more about Bybit Perp protection, read this and this.
