So as many of you already know, Kraken has listed Moons a few months ago.

With this post I want to show you something interesting I've found out about Moons Futures and will explain to you with a friendly warning of potential risks some might not be aware. I will keep the post as simple & short as possible to not get too much into details.

Let's start with the basics

perpetual Future contracts

"A perpetual futures contract, sometimes known as a perpetual swap, is a type of derivative commonly used in cryptocurrency that allows traders to speculate on the price of an asset"

In other words, it's a contract based on the underlying asset ( in this case MOONS ) that traders can use to speculate it's future price. This is a popular tool to trade because contracts can get leveraged but also short sold.

However there are specific conditions when it comes to these contracts.

Funding fee

Funding is the primary mechanism to ensure exchanges last traded price is always anchored to the global spot price. It is similar to the interest cost of holding a position in spot margin trading. These fees are essential to make sure traders aren't "sitting" on open positions forever but also to rebalance the future contract value compared to the underlying asset.

summarized, if more people short an asset and the price falls under the spot price of the underlying asset, the funding fee turns negative. Every cycle ( usually 8h ) short sellers have to pay long holders a fee. The opposite works as well. This attracts new traders to jump in and long the asset to stabilize the price again.

The MOON case - intentional or big mistake?

With the Kraken listing, futures were also added for Moons. However, nobody really trades them. Except that one person, that was able to open a short position at the very first days of listing, pushing down the price of the asset turning the funding fee negative.

Here's the problem - they can't close the short. Because there isn't any liquidity, they are literally stuck on a open short position ( although in profit ) that pays fees every single day multiple times.

Here's the funding fee since Moons listing and how much the short seller had to pay to long holders since then :

https://preview.redd.it/bi59qlp2jztb1.png?546&format=png&auto=webp&s=f303ed7db2d236931a0aae6ed7011b819cbae934

https://preview.redd.it/a4v99wh3jztb1.png?537&format=png&auto=webp&s=b74d7be443ef0f190287aff82313c53ad4c36c65

https://preview.redd.it/nbtx1th4jztb1.png?541&format=png&auto=webp&s=032b8f85cbc101365396aacbda7c72ee16dc5ff0

You can see, it's been a lot of fees the person had to pay so far. I'm personally not sure whether the entity is aware of it and maybe doesn't care due the fact their short position should be in profit, but eventually, if this keeps going, they can actually get liquidated on it with fees reaching a higher level than their margin.

This is a good example of side effects using futures that many aren't aware. The worst part: if you apply leverage, you also leverage the fees.

Or in other words, take this example as a nice information to make sure you always 100% understand any financial tool you use to make sure no unintentional losses happen. At the end of the day, the exchange won't refund you any losses caused by your own mistakes.

Thanks for the read