Q: What is leveraged ETP product?
A: Leveraged ETP product is a kind of financial derivative which is very popular in traditional financial market. It is a trading product that can track a certain multiple (such as 2x, 3x, -1x, and -2x) of the target asset's income every day on the premise of a given underlying asset (such as BTC). If the BTC price rises by 1%, the net value of 2x and 3x leveraged ETP product will rise by 2%, 3%; while the net value of -1X and -2x products will fall by -1%, -2%. (risk tip: if the direction is misjudged, there will be a risk that the price will approach zero in the extreme market.)
Q: How can leveraged ETP product realize corresponding benefits?
A: In essence, leveraged ETP product is a product managed by professional financial engineering teams, which corresponds to a certain number of futures contract positions. Managers can maintain a fixed leverage multiple in a certain period of time by dynamically adjusting futures positions. The management and maintenance of the portfolio is the responsibility of a professional team, so that investors can easily build their own constant leverage portfolio without knowing the specific mechanism.
Q: The underlying of leveraged ETP product?
A: In the first phase, we launched leveraged ETP product to track the change of BTC price. In the later phase, we will launch leveraged ETP product in other popular currencies according to the market situation.
Q: What can be used to buy leveraged ETP product?
A: Leveraged ETP can be bought with USDT.
Q: Naming rules for leveraged ETP product?
A: For example, the English name of BTC 3x long product is BTC 3X Long, which is abbreviated to BTC3L. For BTC 3x short product, its English name is BTC 3X Short, abbreviated to BTC3S.
Q: How to realize never blow-up forced liquidation? What is rebalance mechanism?
A: We will rebalance the portfolio behind the leveraged ETP product at regular intervals so that the portfolio leverage ratio does not deviate too much from the agreed ratio. In general, we will rebalance our positions every 24 hours. When there is a sharp fluctuation, if the fluctuation of the underlying asset compared with the previous rebalancing point exceeds the given threshold (in the initial stage, we set the threshold to 15% for 3x long and short, and in the future, if there are other times of products, the threshold may be different.), we will also conduct temporary rebalance to control the risk of the portfolio. The temporary rebalance is only aimed at the party with loss due to the fluctuation, that is, if BTC increases by 15%, we will rebalance the leverage ETP of -3x and do not adjust other products. (risk tip: if the direction is misjudged, there will be a risk that the price will approach zero in the extreme market.)
Q: What are the similarities and differences between leveraged ETP product and futures contract products?
A: Like futures contract products, leveraged ETP product is a derivative with leverage effect, which can enlarge investors’ earnings and is a cheap risk hedging tool. However, compared with futures contracts, leveraged ETP product has the following unique characteristics:
No margin is required and there is no risk of blow-up liquidation (risk tip: if the direction is misjudged, there will be a risk that the price will approach zero in the extreme market.). For investors who don’t have much time to watch the market, buying leveraged ETP product can greatly save your time.
Fixed leverage. With the change of asset price, the leverage ratio of contract position may change, which deviates from the original intention of investors. For example, investors set up a low leverage short futures position, when asset prices rise sharply, investors’ position leverage ratio will become very high, which deviates from investors’ original risk preference. The leverage ratio of leverage products is basically constant, which enables investors to better comply with their investment plans.
Q: The differences between leveraged ETP and leverage spot trading?
A: Compared with leverage spot trading, leveraged ETP product doesn’t need margin and has no risk of forced liquidation. At the same time, compared with the funding interest fee of leverage spot trading, the holding fee rate of leveraged ETP product is lower.
Q: The fee rate of leveraged ETP product?
A: The trading fee of leveraged ETP product on BKEX is: (Maker) 0.15% and (Taker) 0.2%. Besides, BKEX will charge management fee (Generally, the management fee rate is 0.2%. The management fee rate is dynamic based on the performance of crypto market. The specific management fee of every underlying is displayed on the leveraged ETP product trading page) for each times leverage every day to pay the funding fee, trading fee and other necessary charges generated by the ETP portfolios. The management fee will be charged in the form of deduction of assets with corresponding leveraged ETP. It is only charged at 23:00 (Singapore time). No fee will be charged if you do not hold Leveraged ETP product at the time point.
Q: What is unit net value? What are the differences between unit net value and price?
A: Each unit of leveraged ETP product corresponds to the corresponding share. The dynamic real value of this share is the unit net value of leveraged ETP product. At the same time, the product is actively traded in the secondary trading market, so the latest transaction price may deviate from the unit net value. We also list the unit net value and the latest transaction price. We hope that investors can realize that the price you buy / sell should not deviate from the unit net value, otherwise you will suffer corresponding losses in theory. At the same time, when the net value price is lower than a certain threshold (0.05 USDT at the initial stage), the platform will merge the varieties (change the net value price to 10 times before the merger, but the corresponding quantity will also change to 1 / 10 before the merger, and the total assets of users will not be affected in any way) to improve the price variation sensitivity and optimize the transaction experience.
The calculation of net value for leveraged ETP
Let us first define a complete 24 hours as a trading day (16:00 (UTC) to 16:00 (UTC) the next day). The kth trading day will be denoted as tk, k = 0, 1, 2, ... , where t0 = 0. Set the initial net value as 100 USDT, which means S(0) = 100 USDT.
S(0): Initial ETP net value;
S(t): ETP net value at time t, t ≥ 0;
P(0): Underlying price at t0;
P(t): Underlying price at time t;
M:Target leverage ratio, for instance, M could take value as 2, 3, -1, -2, -3.
The yield rate for ETP and underlying at time k are expressed in the following equations:
The goal of the leveraged product is to guarantee the leverage ratio of ETP yield equals M, which means
Q: What kind of investors are more suitable for leveraged ETP products?
A: As a product that has been tested in the traditional financial market, leveraged ETP product is suitable for most investors. However, the product is particularly suitable for investors who think that asset prices will have a single trend and investors who do not want to bear the risk of blowing up. Due to the existence of management fees and the characteristics of leveraged ETP product, the product will have a large loss in the volatile market.
For example, if the daily trend of BTC is +10%, +10%, +10%, +10%, the 4-day yield of BTC is 185%, which is higher than 3 times of 44% of the 4-day spot yield; if the daily trend of BTC is -10%, -10%, -10%, and -10%, the 4-day loss of BTC is 76%, which is less than 3 times of 35% of the 4-day spot loss; if the daily trend of BTC is +10%, -10%, +10%, -10%, then the 4-day yield of the product is -17%, which is 3 times lower than the 4-day spot yield of -2%.
If the daily trend of BTC is +10%, -10%, +10%, -10%... This trend lasts for 100 days, then the yield of 3L and 3S products of BTC is -99.1%, and the net price will tend to zero.
If BTC continues to rise in the first 10 days, with a total increase of 200%, and then continues to fall in the next 10 days, with a total decrease of 200%, then the net price of 3L and 3S products of BTC will tend to zero. At the same time, this process will trigger the "share merger" mechanism to ensure volatility.
In addition, the risk of 3L and 3S net value tending to zero will also occur in other extremely volatile market conditions, such as continuous sharp rise and continuous sharp drop.
Q: How to buy leveraged ETP product?
A: Currently, the trading pairs of leveraged ETP product are set in ETP Area. You can buy relevant product in corresponding area like other digital assets.
Herein we remind users that in order to protect your fund security, please know about the design and price fluctuation mechanism of the product before trading it to avoid unnecessary loss.
When trading leveraged ETP product, please place orders after knowing about the price differences between actual net value and latest transaction price. If the direction is misjudged, there will be a risk that the price will approach zero in the extreme market. The product is a high-risk derivative, investors should pay attention to control risk.