Key Terms

Base Currency: The base currency is the first currency appearing in a trading pair. For example, if you were looking at the ETHUSD currency pair, then ETH would be the base currency.

Collateral: Asset locked during the time of a given financial contract. In the case of Increment, the collateral refers to an amount of an allowlisted collateral (e.g. UA) that is used to back a trading position.

Funding: The funding mechanism serves an important role for perpetual markets by preventing lasting divergence between the perpetual contract price and the index price. Depending on the amount of long versus short open positions in a market, there will be a higher or lower perpetual contract price than the index price, which results in a higher or lower funding rate. For specific details and calculations of funding rates and funding payments, see Funding payments

Index Price: The index price is an oracle price of the underlying spot market.

Leverage: Trading with leverage amplifies your buying or selling power, allowing you to trade larger amounts even if your initial capital is small. For example, if your collateral is 100 and leverage is 5x, then the notional value is 500.

Liquidation: When a user cannot meet the margin requirements for their leveraged positions, then their positions become "bad debt" for the protocol. Therefore, liquidations are necessary when the margin ratio drops below a certain threshold.

For specific formulas of liquidation parameters, see Liquidation

Margin: Margin is the collateral value that you must pay to open a leveraged position. This margin can be provided using any of the allowlisted collaterals.

Margin Ratio: Margin ratio measures the liquidation risk of a position. When the margin ratio is high, it means that the risk of getting liquidated is low and when the margin ratio is low, it means that the risk of getting liquidated is high.

For more detailed calculations, see Margin and Liquidation

Mark Price: The mark price is the TWAP of the perpetual contract price or market price.

Market Price: The market price is the last traded price of the perpetual contract.

Notional Value: The notional is the total dollar value of a position, which is calculated by taking the absolute value of the collateral amount multiplied by leverage.

PnL (Profit and Loss): Unrealized Profit and Loss (PnL) is the cost of a position minus the current value of a position. The current unrealized value is determined using a price oracle for liquidation purposes. The realized PnL is determined by the executed price when closing a position.

Position Size: The position size is the total value of a position quoted in the base currency, which is calculated by using the notional value divided by the market price.

Quote Currency: The quote currency refers to the currency on the right side of a currency pair. In the example of ETHUSD, the quote currency is USD. In Increment, all perpetual pairs are quoted in USD. Additionally, all collateral value, margin, PnL, and settlement are accounted for in USD.

Trading Pair: A trading pair is a price quote of the exchange rate for two different currencies, such as ETHUSD.

TWAP: TWAP (Time-Weighted Average Price) is the average price calculated over a certain period. The TWAP is less prone to manipulation by significant market fluctuations or disruptions caused by large orders.

For more details on how the TWAP is used on Increment, see TWAP

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