Delivery Contracts: Everything You Need To Know
The price of Bitcoin and other cryptocurrencies are highly volatile. That rapid change in the price of digital assets makes predicting price movement a profitable option for traders.
In predicting price movement, a contract is necessary as you are not buying the assets but price positions. Delivery contracts are just one of such contracts. This article will exclusively discuss everything you need to know about Delivery Contract.
What is a Delivery Contract?
A delivery contract is a type of Bitcoin futures contract where contractual actions based on specific price movement are time-sensitive. That means your price movement prediction must happen during the timeline agreed on within the contract.
A delivery contract considers two things: the delivery date and the predicted price movement. These items decide the execution of the delivery contract, ensuring the respective parties are remunerated or otherwise based on the agreed terms.
Like the Bitcoin contract, delivery contracts are of various types, depending on the contract timeline. Here are the different delivery contracts and what they entail:
Current Week Delivery Contract
Here, the execution of the delivery contract stipulations is done within the current week. It is a short-term contract as the delivery date is Friday of the current week.
Next Week Delivery Contract
This type of delivery contract sees an extension in the execution of contractual obligations. Typically the delivery of the contract requirements happens the following week of the contract creation.
Current Quarter Delivery Contract
The delivery date for the conclusion of the contract is much longer — a quarter. Traders on such a contract must match dictates of the contract within the delivery date of a quarter.
This contract type is more long-term as contractual actions take place within a quarter.
Next Quarter Delivery Contract
Here, the contract terms execution takes place in the subsequent quarter. If you open such a contract in quarter A, the delivery date will be the next quarter.
What Are The Benefits Of Delivery Contracts?
There are several perks attached to a delivery contract. Some of these benefits are negligible compared to others, but they all count in the end. Below are some of the advantages of opting for a delivery contract:
Enjoy The Opportunity Of Futures
A delivery contract might differ from its popular sibling (perpetual contract), but you get to enjoy the dividends of futures as well. On such a delivery contract, you can maximize your trading gains through the usual ways — leverage, take profit, stop loss, and other gimmicks available.
Timed As You Want
With delivery contracts available in different timeframes, the time factor is less of an obstruction. You can decide to settle for a quarter or next quarter delivery contract if the other options are not convenient.
Zero Recurrent Funding Fee
Delivery contracts might have an expiration date, but you do not have to deal with a daily funding fee. This makes them a cheaper route towards enjoying the gains of futures trading, especially when compared to the alternative. By opting for a delivery contract, you don’t struggle. Contract remains insulated from speculations.
What Is The Difference Between A Delivery Contract And A Perpetual Contract?
Both the delivery and perpetual contracts have their origin in the Bitcoin futures contract. Yet, there are several differences between the delivery contract and the perpetual type. These differences include:
• Time Factor
A delivery contract is time-dependent. The contract gets settled at the agreed time. Parties involved in a delivery contract have to always take note of the delivery date in their contract before proceeding.
The perpetual contract doesn’t have that time constraint. You can open a perpetual contract, leaving it open for as long as you like. A perpetual contract is free from that time challenge.
• Leverage Opportunities Differ
Though a delivery contract and its perpetual counterpart are types of a bitcoin futures contract, the opportunities available differ. A delivery contract lacks access to the sort of leverage that’s available on a perpetual contract. On Binance, the maximum leverage available on a delivery contract is 20x, but you can get 100x with a perpetual contract.
• Settlement Fee/Funding Fee
Opening a delivery contract comes with a one-time settlement fee. And this takes place on the expiration of the contract.
The perpetual contract doesn’t have a one-time settlement fee. There’s a daily funding fee that changes as more users take up positions in the futures market. Also, the funding rate varies with the contract. For instance, a BNB PERP/BUSD perpetual contract might have a funding rate of 0.005% daily, but a GRT PERP/USDT could have a funding rate of 0.0025%. Interestingly, you can keep the perpetual contract open as long as you wish — you just have to be wary of the funding rate.
How Do Delivery Contracts Work?
On entering a delivery contract, you engage in the futures trading market for a specific period. You can choose to open any position — long or short — based on your expectations. The catch is that your contract expires after a specific time. Once the expiration date arrives, the contract terms are settled based on the current market situation.
Nevertheless, the delivery contract is less expensive and risky compared to the perpetual kind. There are no frequent funding fees to deal with, and the leverage available is much lower.
When opening a delivery contract, you have to keep in mind the delivery date. Once you are fully confident of the delivery date, this contract type is often easier to navigate.
The one-time settlement fee is much lower than the multiple payments in a day arrangement that’s the norm on perpetual contracts.
What Is A Delivery Contract Expiration?
The delivery contract has a timeline, which when exceeded leads to the expiration of the contract. Once the contract expires, it’s settled based on the current market situation. Moreover, a settlement fee is automatically applied.
A delivery contract expiration signals the end of the current contract entered with the exchange. An example is the quarterly delivery contract on Binance that expires at the onset of the next quarter.
You can always choose to reopen another delivery contract once the previous one expires.
How To Trade Delivery Contracts On Binance?
If you’re looking to trade delivery contracts on Binance, quarterly contracts are only available. You can’t open other shorter-term delivery contracts on the centralized exchange.
On Binance, quarterly delivery contracts have a defined path for the delivery date. There’s a calendar cycle that provides clarity on the contract delivery date.
The delivery contracts are Coin-margined; contracts get created with the underlying asset as margin. For instance, opening a BTCUSDT quarterly contract requires holding some BTC to serve as margin. Settlement of such contracts uses the underlying asset. So if the contract expires with a realized profit, it’s added to your BTC holding on the exchange.
On the expiration of a delivery contract on Binance, the settlement fee is automatically deducted based on the stipulated taker charges. The settlement price is typically the current market price as at the expiration of the contract. The exchange removes the settlement fees from the realized profit/loss, and the remainder gets returned to your margin account.
Binance allows certain concessions for a delivery contract. For instance, during increased price volatility, delivery contract settlements are rescheduled to reduce the risk to users. The centralized exchange tends to inform all those affected before such an action is taken.
Delivery contracts are not exceedingly popular or flexible like the perpetual contract, yet they provide a lucrative opportunity for traders to partake in the futures market.
By opting for delivery contracts, you are less likely to be influenced by the highly speculative crypto space since contracts can not be closed until they expire or hit the desired profit margin. You can’t ignore the reduced leverage, which plays a significant role in risk management. Rigid and time sensitive, delivery contracts are certainly not for everyone, but they are the best bet for certain users.