Strategy 06 · Perpetuals
Venue Diligence
The counterparty is the exchange.
A perpetual position is an unsecured claim on the exchange that hosts it. The exchange holds the margin, sets the mark, runs the liquidation engine and decides what happens when the engine loses money. Every one of those is a way to lose capital independent of the position’s performance. Venue diligence is the review of all of them, and it produces a limit.
Financial and regulatory
Ownership and jurisdiction; regulatory status and the regulator; audited financials and proof-of-reserves practice; segregation of client assets from the venue’s own; history of outages, hacks and withdrawal suspensions. A venue that cannot demonstrate segregation is a venue whose margin is an unsecured loan to its operating company.
Market mechanics
Index composition and how constituent failures are handled; mark methodology and its behavior in past squeezes; funding interval, formula and caps; margin tiers and maintenance requirements; liquidation engine behavior; insurance fund size relative to open interest; auto-deleveraging and loss-socialization rules. These determine how the venue behaves when it matters, and they are read from the rules and tested against history.
Operational
API reliability and rate limits; withdrawal processing times and limits; whitelisting controls; supported collateral and off-exchange collateral programs; access for the fund’s legal structure. The ability to post tokenized Treasuries through a custodian, rather than deposit assets to the venue, materially changes the venue’s risk profile and is weighted accordingly.
The output
A venue passes or does not, and if it passes it gets a limit: the maximum exposure the fund will carry there across all positions and all collateral. Limits are reviewed on a schedule and on any material change (an ownership change, a regulatory action, an incident), and are reduced before they are breached.
Practice
How Wesvel approaches it
- 01A written review covering financial, regulatory, market-mechanics and operational factors precedes trading on any venue and is refreshed on a schedule.
- 02Venues without demonstrable client-asset segregation are not used regardless of liquidity or funding.
- 03Off-exchange collateral capability is weighted heavily; margin is held with a custodian wherever the venue supports it.
- 04Every venue has a limit enforced by the systems that trade, and an exit plan written before the first position.
More in Perpetuals
- How Funding WorksMark price, index price and the periodic payment between longs and shorts that keeps a perpetual tethered to spot.
- Funding CaptureThe core carry position: spot in custody against a short perpetual at the venue, collecting funding with near-zero price exposure.
- Cross-Venue Funding DifferentialsHolding a long perpetual where funding is low against a short where it is high, capturing the difference with no spot leg.
- Perpetual vs. Dated BasisTrading the perpetual’s realized funding against the interest rate implied by a dated future’s premium.
- Exposure with Managed RiskHow the desk uses perpetuals to add exposure to a view it wants more of, and the sizing, margin and cost discipline that keeps leverage a tool rather than the trade.
- Liquidation ManagementManaging the gap between a position and its liquidation price, margin, sizing, and what happens in the tail.