Understanding Perp Protect: Your Shield Against Risks in Perpetual Contracts

Perpetual contract traders are constantly facing the threat of significant losses when the market moves against them. Perp is an innovative solution designed specifically for this issue: an intelligent system that automatically purchases recommended protective options to safeguard your positions, whether long or short. This tool combines the power of algorithmic analysis with the flexibility needed for traders of all levels to protect their capital strategically.

How Perp Builds Your Protection Strategy

This protective shield operates based on a sophisticated mechanism that evaluates critical variables of your trade: the leverage used, the initial margin reserved, and the current market price of the asset. Based on these parameters, the system generates personalized recommendations on which options to buy to maximize your protection.

Currently, coverage is available for the main perpetual contract pairs in the crypto ecosystem: BTCUSDT, ETHUSDT, BTC-PERP, and ETH-PERP. Although acquiring these options involves an additional investment, it is insignificant compared to the potential losses you could avoid. An important note: this feature is reserved exclusively for users with unified trading accounts (UTA) operating in cross-margin mode.

Trader Profiles Who Benefit from This Protection

Several groups of traders find particular value in this strategy. Beginners in perpetual contracts can gain confidence knowing their positions have a cushion of protection. Those holding long-term positions with conservative leverage discover that Perp allows them to safeguard their investments profitably. Traders handling significant volumes appreciate the risk control it offers. Finally, when you anticipate volatility without certainty about market direction, this coverage becomes your strategic ally.

How It Works: From Premium to Compensation

Essentially, you pay a premium (the cost of the option) to obtain the right to receive a payout if the market moves unfavorably. The system automatically chooses whether you need put options (for long positions) or call options (for short positions).

For a long BTC position, you will buy a put option with a predefined strike price. If at expiration the asset price falls below that level, the system will automatically activate the compensation. Conversely, if your position is short, you will acquire a call option, and the compensation activates when the price rises above the agreed strike price.

A critical point to understand: Perp does not prevent the liquidation of your perpetual contracts. What it does is provide a compensatory payout if certain conditions are met at expiration, reducing the overall impact on your portfolio.

Activation Scenarios and Outcomes

Two situations can occur when it’s time for compensation:

Scenario 1: Conditions are not met. The market moved in your favor, your perpetual position generates gains, and the option is not exercised. Your maximum loss will be only the premium paid for Perp.

Scenario 2: Activation condition is met. The market moved against you, and the option is automatically exercised, depositing a compensation into your trading account. This significantly reduces your total losses.

Compensation is calculated by comparing the agreed price (the average index price 30 minutes before expiration) with the strike price. The formula is straightforward: if the difference is favorable, you receive that amount multiplied by your position size, minus the premium already paid.

For Long Protections (Put Options)

Compensation = Max{0, [Strike Price - Agreed Price] × Position Size} - Premium Paid

For Short Protections (Call Options)

Compensation = Max{0, [Agreed Price - Strike Price] × Position Size} - Premium Paid

Practical Cases: From Theory to Practice

Case 1: The Protected Optimist

Imagine a trader operating 1 BTC with 50x leverage, entering at 29,500 USDC. With the market price at 31,000 USDC, the position is in profit. They buy Perp protection costing 60 USDC, setting a strike price at 30,000 USDC.

If in 24 hours the price rises to 32,000 USDC, they gain 2,500 USDC on the perpetual, lose 60 USDC on the Perp premium, and do not receive compensation (negative condition not met). Net profit: 2,440 USDC.

If the price drops to 29,000 USDC, they lose 500 USDC on the perpetual, but Perp activates paying them 1,000 USDC. Net profit: 440 USDC.

Case 2: Unexpected Liquidation

A trader with a long position has a maintenance margin of 70%. They buy Perp protection with a strike at 30,000 USDT. The market suffers a sharp drop, their margin hits 100%, and their perpetual is liquidated.

However, their put option remains valid. If at expiration the agreed price is 30,500 USDT (above the strike), they do not receive compensation. Their loss includes the forced closure of the perpetual plus the Perp premium.

Case 3: Favorable Close

Same trader as above, but this time their take-profit order is triggered before liquidation, closing with gains. Their Perp option remains active. Minutes later, the market drops and the expiration price is 29,000 USDT.

Since the agreed price is below the strike (30,000 USDT), they receive compensation. Their total profit is: the profit from the perpetual + Perp compensation - the premium paid.

Why Choose This Strategy Over Others?

Versus Stop Loss: A stop loss automatically closes your position, realizing losses. Perp keeps your position open and only pays you if specific conditions are met.

Versus Manual Options: You could buy call or put options manually, but that requires selecting among multiple options. Perp simplifies this with intelligent recommendations tailored to your leverage and margin.

Versus Perpetual Products Without Liquidation: While safer, these products limit your operational freedom. Perp protects your current position while allowing you to maintain full control over your strategy.

Important Considerations

The system manages market conditions in real-time, but premiums may vary slightly from estimates. Options purchased via Perp do not close if your perpetual is liquidated: they remain active until expiration, meaning if the trigger condition is not met, you will not receive compensation even if your position closed at a loss.

Adjusting your position size after purchasing Perp protection does not automatically update the coverage; protection is based on the initial size. You can manually adjust your options from the options trading page if you need greater flexibility.

This tool represents an evolution in risk management for perpetual traders, combining smart protection with the operational freedom demanded by crypto markets.