Firstly, there’s the funding rate, which is usually charged every 8-hours to balance the leverage used from both buyers (longs) and sellers (shorts).
On the bottom-right side of Digitex, you can check the funding rate for the selected pair. This fee will usually be negligible on balanced markets, such as 0.01%, which is equivalent to 0.2% per week.
Whenever the rate is positive, it means that longs are the ones paying the fee. Therefore, the higher the optimism from buyers, the higher the funding rate tends to be.
On the other hand, bearish markets will usually lead to a negative funding rate, meaning that shorts are the ones paying it.
Who Calculates the Funding Rate?
The exchange gains nothing from the funding rate, as it is settled between its users. The fee exists solely to balance out the demand for leverage. Even though the number of contracts from longs and shorts is matched at all times, their leverage varies.
Mind the trading fees
Even though Digitex offers zero-fee commission trading, that is not the standard in the industry. The derivatives exchanges usually charge 0.05% to 0.10% for taker fees, orders that execute immediately against their order book.
However, most users fail to realize that despite depositing 1000 USD, a 20x leverage trade will charge fees based on 20000 USD volume. That’s $20 for every transaction, which is quite steep.
Therefore, there’s an illusion that a small deposit can generate huge earnings by making multiple trades on the day. Which in turn makes trading on a zero-fee commission exchange makes a lot of sense for perpetual contracts.
Liquidations – A Traders’ Worst Nightmare
Whenever the market runs favorably, it’s all good. You can pay whatever fees are required. Then, all of a sudden, an unexpected move causes the position to become delinquent. Insufficient margin will trigger the exchanges’ liquidation engine, forcefully terminating clients’ position.
That’s not the exchanges’ fault, but novice traders tend to abuse leverage trading. On the other hand, experts will follow some simple strategies to avoid those issues:
Rule 1 – Don’t Use Excessive Margin
Deposit enough funds at the exchange so that you are never caught by surprise with low margins. Use your own leverage limit, or better yet manually enter your stop losses. Make sure to mark the “Reduce Only” when entering those stop orders.
By using this option, one avoids the risk of incorrectly adding a position when it was supposed to reduce your risk in the first place.
Rule 2 – Pocket 30% of the Profits Whenever Possible
If a trade is going favorably, make sure to pocket at least 30% of the profits as soon as it hits your first target. That way, you can lower your stop loss as there’s some cash held as ‘reserves’.
By being less greedy, one prepares the terrain for negative surprises, reducing the risk of getting liquidated.
Rule 3 – Don’t Change Your Stop Loss
Sometimes a trade starts nicely, but then it suddenly goes the other way. Traders tend to become overconfident and reduce their stop losses. This is a basic mistake that even experienced traders make.
By holding on to your initial strategy, there’s no chance that your losses will be greater than planned.