Futures
LNM Futures is a derivative perpetual futures contract whose underlying asset is a weighted basket of BTCUSD perpetual futures from multiple exchanges, such as Bybit, Binance, Deribit or BitMEX.
It is designed to capture the performance of various BTC/USD perpetual contracts across different exchanges or platforms.
Key characteristics
Diversification of Exchange Risk: This construction helps mitigate the risks associated with any single exchange. If a particular exchange experiences disruptions, LNM Futures would still be exposed to the performance of BTC/USD on other exchanges.
Reduced Impact of Funding Rates: Since perpetual futures have a funding rate to maintain price parity with the spot market, an aggregated basket balances out extreme funding rate variations across platforms.
Efficient Exposure to Market-Wide BTC/USD: Traders have a single product that gives them exposure to a broader market view of BTC, instead of betting on the price from a single exchange, which might have unique influences (liquidity, trader sentiment, etc.).
Improved liquidity: Since the trade is executed across a basket of order books, LNM can provide significantly better liquidity than what a trader would typically find on a single exchange.
Price reference
The BTCUSD Basket Last Price serves as the benchmark for calculating profit and loss (P&L) and triggering events such as liquidation, take profit, or stop loss. It is a weighted average of the last traded prices of BTC/USD perpetual futures from the exchanges included in LN Markets’ selected basket. The current composition of the basket is as follows:
| Exchange | Weight |
|---|---|
| BitMEX | 60% |
| Bybit | 20% |
| Deribit | 20% |
| Binance | 0% |
This composition may be modified without prior notice.
Market liquidity
LN Markets provides continuous pricing for buying or selling any quantity of LNM Futures. However, the liquidity available for different quantities can fluctuate based on market conditions. This means the price quoted by LN Markets may vary depending on the size of the trade, with larger quantities potentially impacting the price offered.
To help traders understand this liquidity variation, the volume ladder is a visual tool that displays the immediate liquidity available on LN Markets. It shows how much can be bought or sold at different price levels in real time, giving traders insight into how their order size might affect the price and helping them make informed trading decisions.
Any trading event is affected by the market liquidity.
⚙️ Example for a liquidation: consider a trader holding a long position worth USD 150,000, with a liquidation level set at 92,000. The Price reference, which determines the position’s value, is currently at 92,030. At the same time, the volume ladder indicates that the highest available bid for this quantity (USD 150,000) is at 92,010.
However, due to changes in market liquidity, the bid price for this quantity drops below the liquidation threshold of 92,000. When this happens, the position automatically gets liquidated, as the market can no longer support the position without additional margin.
This process ensures the platform minimizes losses by closing the position before its value falls further below the margin requirements. It highlights how liquidity variations can impact large positions, especially near critical thresholds like liquidation levels.
LNM Futures contract specification
| Description | Value |
|---|---|
| Price Reference | BTCUSD Basket Last Price |
| P&L | |
| Liquidation Level | |
| Max leverage | x100 |
| Max quantity per trade | USD 500,000 |
| Max quantity per account | USD 10,000,000 |
Leverage
Leverage in trading is an investment strategy that allows one to gain exposure to a financial asset with a smaller upfront capital, known as margin.
Leverage is a double-edged sword. With a leverage of 1, you are exposed to the variations of the underlying asset. With a leverage of 2, for a long position, when the underlying asset increases by 1, your P&L increases by 2. But when the underlying asset decreases by 1, your P&L decreases by 2. And vice versa for a short position.
On LN Markets, leverage is limited to x100.
Margin
Trade margin
When buyers and sellers want to enter a Bitcoin derivatives position, to make sure they honor their contractual obligations, exchanges and trading platforms require them to deposit and maintain an account funded with Bitcoin as collateral: this is called the trade margin.
For a given trade margin and leverage, quantity and liquidation are automatically computed:
On LN Markets, each trade margin is dedicated to a specific position. Hence, a trader can have different positions with a specific trade margin policy for each one.
Trade margin is expressed in sats (1 BTC = 100,000,000 satoshis or sats).
Maintenance margin
The maintenance margin represents the lowest required balance to keep your position or order active. It encompasses a reserve to cover the costs associated with opening and closing the position.
##Margin
The margin is the total amount in sats to deposit in collateral to open a position.
The margin is equal to a trade margin plus a maintenance margin, which is the minimum amount to keep your position open (it includes closing fees).
When an order is executed (whether it’s an opening or closing order), the fees are subtracted from the maintenance margin. For market orders, this deduction occurs immediately upon placing the order, as the execution is instantaneous.
Fees
Trading fees
Your trading fee depends on the Tier in which you belong. The higher your trading volume, the lower your trading fees. Check your Profile to know your Tier.
How are computed trading fees? Initially, and maintenance margin = opening fee reserved + closing fee reserved, with opening fee reserved = quantity / entry price X Tier1 fee and closing fee reserved = quantity / initial liquidation price X Tier 1 fee.
At the time of trading, Total fee paid = opening fee and maintenance margin = opening fee reserved + closing fee reserved - opening fee. Opening fee reserved and opening fee can be different in case of change of Tier fee.
When closing a position, Total fee paid = opening fee + closing fee and maintenance margin = opening fee reserved + closing fee reserved - opening fee - closing fee.
And users will receive P&L + margin + maintenance margin.
⚙️ Example of trading fee calculation: for a long position of quantity = $60, trade margin = 10,000 sats, leverage = 10 and entry price = $60,000, we have initial liquidation price = $54,545. Then opening fee reserved = 100,000,000 X (60/60,000)X 0.1% = 100 sats and closing fee reserved = 100,000,000 X (60/54,545) X 0.1% = 60 sats. At the time of trading, if there is no change of tier fee, total fee paid = 100 sats and maintenance margin = 100 + 60 - 100. When closing the position, if there is no change of tier fee, total fee paid = 100 + 60 = 160 sats and maintenance margin = 0.
Funding fees
Funding fees in perpetual futures maintain the price of the perpetual contract close to the price of the underlying asset, known as the “spot price”. Without an expiry date, as in traditional futures, perpetual futures require a mechanism to align the contract price with the underlying asset’s market price.
The funding rate calculation is an aggregation of individual rates determined using the same methodology employed to construct the price.
⚙️ Example of funding rate calculation:
| Exchange | BitMEX | Bybit | Binance | Deribit | LNM |
|---|---|---|---|---|---|
| Weight | 25% | 25% | 25% | 25% | - |
| Funding rate | 0.02% | 0.05% | 0.03% | 0.05% | 0.0375% |
The funding fee is updated every 8 hours according to market conditions and only applies to running positions (limit orders become running once they are executed).It is computed with the quantity expressed in BTC and withdrawn from each margin position every 8 hours at 4:00 am, 12:00 pm and 8:00pm UTC.
⚙️ Example of funding fee calculation: for a funding rate of 0.01%, a long position of Quantity = 10, with BTCUSD rate = $30,000, the funding fee is = (10/30,000) X 0.01% X 100,000,000 = 3 satoshis.
How to…?
Add margin
You can add margin to your running positions at any time by clicking the ”+” button in the Actions section of the Running Positions blotter. This action will reduce the leverage of your running position, thereby decreasing the likelihood of a liquidation event.
Cash in
You can cash in from your running positions at any time by clicking the ”-” button in the Actions section of the Running Positions blotter. When you cash in, funds are first deducted from the trade’s profit and loss (P&L), if applicable, and then from the trade’s margin. Please note that cashing in increases the trade’s leverage; therefore, not all of the margin will be available, as leverage is subject to limits.
Group trades
You can organize your trades in the Running Blotter for more efficient management. When trades are grouped, you can establish a take profit, stop loss, or close order that applies to the entire group. Additionally, you have the flexibility to ungroup trades at any time.
What is…?
Index price
The Index price is a weighted average of the last price of the underlying asset’s market consensus price for each constituent exchange.
Entry price
The entry price of a position is the price at which a position is opened.
Exit price
The exit price of a position is the price at which it is closed.
Quantity
The quantity is the number of contracts you want to trade.
On LN Markets, each contract is worth 1 USD, margin and P&L are expressed in sats (1 BTC = 100,000,000 satoshis or sats).
Liquidation
Liquidation is the forced closure of a running position. It occurs If the Futures price falls below the liquidation level for long positions, or rises above the liquidation level for short positions
Margin ratio
When the margin ratio reaches 100% your position is liquidated. Margin ratio = maintenance margin / (initial margin + P&L - Fee).
Market order
A market order is a buy or sell order to be executed immediately at the ask or bid price.
Limit order
A limit order is an order to buy or sell at a specific price. A limit order is not guaranteed to execute and you can cancel this order at any time before it is executed.
Take profit
A take profit order is an optional order that specifies the exact price at which to close out an open position for a profit. If the price of the underlying asset does not reach the take profit price, the take profit order does not get filled.
For a buy order, the take profit must be superior to the price of the underlying asset.
For a sell order, the take profit must be inferior to the price of the underlying asset.
Stop loss
A stop loss order is an optional order that specifies the exact price at which to close out an open position to limit a loss. If the price of the underlying asset does not reach the stop loss price, the stop loss order does not get filled.
For a buy order, the stop loss must be superior to the liquidation price and inferior to the bid price.
For a sell order, the stop loss must be superior to the offer price and inferior to the liquidation price.
Balance
The balance is equal to the sum of your margin available (to enter future positions), margin used (in open positions) and P&L in open positions.
Margin available
The margin available is the amount you can use to enter future trading positions.