Let’s talk about “delivery”

At present, my country's financial structure is mainly composed of three major elements: stocks, futures, and spot. In foreign countries, stocks, futures, and spot (electronic trading) coexist. Spot trading, as a form of commodity trading, is also a necessary supplement to futures trading.

The futures market first emerged in Europe. The earliest futures trading developed from spot forward trading. The first modern futures exchange was established in Chicago, USA in 1848, and the standard contract model was established in 1865. In the 1990s, my country's modern futures exchanges came into being.

Many people ask why "futures" are called "futures"? In fact, we can find clues from the literal meaning. "Futures" must include a certain period of trading behavior! The standardized contract formulated and stipulated by the futures exchange to deliver a certain amount of the subject matter at a specific time and place in the future is usually called a contract transaction. This specific time determines the inevitability and importance of "delivery". The delivery system is the "deep sea anchor" for futures to travel in the ocean of the financial market.

Futures delivery is the act of the buyer and seller of a contract transaction to settle (close) their futures transactions according to the exchange regulations for the contracts they hold and have not closed when the contract expires. There are generally two ways of delivery (i.e. closing) of contract transactions that everyone is most exposed to: one is hedging and closing; the other is physical delivery. The purpose of contract trading is generally not to obtain physical goods at maturity, but for investors to transfer price risks through futures trading, and its purpose is to obtain risk profits from price fluctuations in the futures market.

To be precise, Bitcoin contract trading should be a derivative of financial structure. Its model follows the ideas of traditional finance, but with the injection of new blood. Bitcoin contract trading adopts standardized contract delivery and uses Bitcoin as the settlement method. Bitcoin contract trading starts with opening a position and ends with closing a position or expiration delivery. Whether it is a long position or a short position, if the position is not closed before the last trading day, the unclosed position must be forced to be delivered. Delivery is because the origin of futures is spot, and delivery determines that the price of futures cannot be outside the price range of spot.

There are currently two delivery methods on Bitcoin trading platforms: 1. Centralized delivery method. 2. Rolling delivery method. So what do these two delivery methods mean to users, and what changes will they bring to everyone's transactions?

The centralized delivery method is widely used by domestic Bitcoin trading platforms. The delivery pairing is a centralized delivery mode after the market closes on the last trading day. On the last delivery day, the buyer and seller implement a one-time delivery, and the delivery price is calculated based on the weighted average price of the settlement prices of all trading days. In short, if the exchange stipulates the last trading day, if there is no delivery before that day, all contracts will be closed uniformly on the last trading day.

Rolling delivery is a fixed time interval after the user's position opening time, such as 7*24 hours. If the position order is still in the system, the forced delivery logic will be executed. Each position order will be forced to deliver by the system after a fixed time interval after its own position opening time. The rolling delivery time of each position order is only related to its position opening time, so the phenomenon of concentrated delivery is avoided. Rolling delivery is only performed on independent positions.

At present, the delivery method of major Bitcoin exchanges is mainly centralized delivery. Coinnice innovatively breaks through and uses rolling delivery.

Comparison of the advantages and disadvantages of centralized delivery and rolling delivery

Advantages of centralized delivery: The main function of centralized delivery is to maintain a strong correlation between the market price and the spot price. With a price discovery mechanism, it will keep the futures spot price highly consistent. Centralized delivery can effectively avoid delivery defaults. This delivery method is relatively common in global commodity futures and financial futures.

Advantages of rolling delivery: The main function of rolling delivery is to facilitate users to smooth their positions in active markets and avoid the risk of price fluctuations caused by centralized delivery. With the extension function, users can extend their positions multiple times and only need to pay very little extension fees. As long as they do not blow up their positions, they can hold their positions all the time. In other words, rolling delivery is more flexible and convenient. You can decide to hold your positions at any time without having to wait until the last trading day for unified delivery. Taking coinice as an example, the price of contract delivery is executed according to the buy one or sell one, and there will be a large indirect correlation with the spot price. The spot price is closely related to the coinice price index. The price index has a great influence on the trigger price of the liquidation, so the spot price and the coinice market price will also be closely related.

Disadvantages of centralized delivery: The centralized delivery of all mass commodities will often cause abnormal price fluctuations of futures and spot before centralized delivery, which will bring potential risks to investors.
The market price often fluctuates before and after centralized delivery, resulting in holding costs in that price direction. If the user rebuilds a position, even if the current week is transferred to the next week, or the current month is transferred to the next month, the above problem cannot be solved well.

Disadvantages of rolling delivery: The biggest shortcoming of rolling delivery itself is that it causes the strong correlation between futures and spot prices to lose contact. To address this problem, Coinice uses a double-trigger logic for liquidation, that is, both the market price and the market index can trigger the liquidation of the user's position.

Whether it is centralized delivery or rolling delivery, there are actually pros and cons. What we need to do is to make the best use of the advantages and avoid the disadvantages to benefit the real interests of users. Whether Bitcoin transactions can grow healthily and whether they can be successfully embedded in the financial market, delivery work is an indispensable core link. Regarding the delivery method, there are currently both support and doubt voices, and all parties are also continuously studying, testing and improving the delivery system.

Bitcoin contract investment is to achieve the purpose of preserving and increasing the value of your assets by rationally arranging funds. In today's Internet era, there is no geographical gap and no communication barriers. Only by mastering the correct investment method can you benefit for life.