Opening a new position is as simple as setting:
- the contract you want to long or short
- the position size (aka the quantity)
- your collateral (aka the margin).
Opening a position
As you can see above, the quoter provides you with a short summary before confirming the transaction. Pay close attention to two fields in particular:
- Basis rate: that’s the cost of carrying, i.e. the relative value between the expirable price and the spot price. If it’s positive, then the market is in contango (the expirable price is higher than the spot price), if it’s negative then the market is in backwardation. It’s a useful metric if you’re willing to lock in a risk-free profit with a cash and carry trade.
- Liquidation price: that’s the limit you don’t want to go under. Keep it monitored even after the position is opened, because it can vary in time depending on how the PnL affects your overall position. Liquidations are carried out by the underlying fixed-rate market (e.g. Yield Protocol for this beta version).
Notice how the fees to trade on Contango are set to 0.
Also, be mindful of how different variables affect the pricing on Contango:
- When Contango borrows, swaps and lends on the underlying fixed-rate market to synthetize a position, all gas fees and third-party fees are already baked into the final price you’re being quoted.
- The price you see on the quoter improves as you post more collateral. This is due to the nature of the protocol, which uses your collateral to borrow less (if you’re long) or lend more (if you’re short) on the underlying fixed-rate market. Any extra profit generated by these actions is given back to you in the form of a better price.
Due to the points above, expect some price differences between Contango expirables and futures on major CeFi venues like Binance, especially at launch. This is also due to a misalignment of interest rates between DeFi and CeFi, which are not (yet) in equilibrium.
Once you have opened a position, you can edit it by adding/removing collateral as well as modifying the overall position size, all in one single atomic transaction. To our knowledge Contango is the first protocol where you can do that. The major benefit is that you can save on gas fees. Another cool trick: when increasing your position size you can easily keep your position’s health unchanged by moving the deposit slider until the leverage of the resulting position equals your current leverage value.
Editing a position
You can close your position before expiry and receive a cash-settlement, or wait for maturity and have physical delivery of the underlying asset. Let’s see these two scenarios in detail:
In this scenario a trader closes her position before expiry, and thus crystallizes her PnL. No extra steps are required on her side: the protocol will simply revert the transactions carried out to open the position. The position will be cash-settled, returning equity to the trader in the quote currency.
Closing a position before expiry
At expiry all positions can be physically delivered - meaning the underlying asset will be delivered to or get delivered by the trader, depending on which side she’s on - or they can be cash-settled in the quote currency.
- If she’s long ETH, she’ll be delivered ETH, in exchange for the missing capital that makes up the difference in the debt she owes. For instance, if she posted only 40% margin in USDC, she’ll need to bring the remaining 60% in USDC to be delivered ETH.
- If she’s short ETH, she’s required to sell (read: deliver) the underlying ETH for USDC, by posting the remaining quantity in ETH. For instance, if she posted only 40% margin in ETH, she’ll need to bring the remaining 60% and she’ll be paid out the full value of her position in USDC.
A Deliver button will be enabled on the UI when positions expire, allowing traders to perform the above actions.
Deliver a position after expiry
A trader can also cash-settle her position and receive equity (with PnL) to her wallet, with no need to bring any additional capital to deliver the full position. Everything will be settled in the quote currency to her wallet.
A Cash Settle button will be enabled on the UI when positions expire, allowing traders to perform the above actions.