🎓Key Definitions

In the Flat Money documentation, we use terms that you may not be familiar with. As an easy reference, we’ve included those definitions below for your convenience.

  • Borrow Rates (a.k.a., funding rates): To ensure that the price of a perpetual contract stays close to the underlying asset's spot price, funding rates are used. In the Flat Money documentation, we refer to this as the borrow rate. Traders who hold positions that go against the current discrepancy will receive payments, while those on the other side pay. This mechanism encourages traders to close or open positions, which in turn helps align the perpetual contract's price with the spot price.

  • Delta Neutral. Delta refers to the sensitivity of a derivative's price to changes in the underlying asset's price. A delta-neutral position means the overall position's value doesn't change with movements in the underlying asset's price.

  • Leverage Long. Leverage allows traders to amplify their exposure to an asset without having to provide the full capital. Going "long" means betting on the price of an asset to rise.

  • Liquidation. In perpetual leveraged contracts, traders use borrowed funds to amplify their exposure to an asset. If the market moves against a trader's position and the value of their collateral drops to a certain threshold, called the maintenance margin, the platform may automatically close (liquidate) the trader's position to prevent further losses. This liquidation ensures the platform and other traders are protected from excessive losses that could exceed the original collateral. Liquidation often comes with penalties, further emphasizing the need for traders to be cautious when using high leverage.

  • Liquidity Provider (LP). A liquidity provider (LP) is an individual or entity that supplies capital to a market, typically in DeFi platforms like decentralized exchanges. In return, LPs earn fees or other incentives.

  • Perpetual Contract. In the DeFi context, a perpetual contract is a financial derivative, similar to a futures contract, but without a set expiration date. This means traders can hold their position indefinitely. The price of the perpetual contract tends to track the underlying asset closely.

  • Skew. Skew refers to the imbalance in the pricing of derivatives compared to the underlying asset, often resulting from more demand on one side of the market (either bullish or bearish).

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