> For the complete documentation index, see [llms.txt](https://docs.carbon.inc/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.carbon.inc/trading/trading-basics.md).

# Trading Basics

### <mark style="color:$info;">**On-Chain Perpetual Futures**</mark>

When you trade on Carbon, you’re entering on-chain perpetual futures contracts, derivative contracts with no expiry. Instead of settling at a fixed date, these contracts allow traders to take long or short positions on an asset’s price for as long as they choose.

Closing a position results in a cash settlement based on the price difference from entry to exit, with leverage amplifying the potential profit or loss. Since these contracts remain open indefinitely, traders should monitor funding rates and market conditions to manage risk effectively.

### <mark style="color:$info;">Collateral & Cross-Margin Accounts</mark>

Before trading, users deposit USDC as collateral into a cross-margin account. Instead of managing margin separately for each position, this account pools all positions together, allowing profits and losses to offset each other and improving capital efficiency.

* **More liquidity, fewer liquidations:** Cross-margining reduces unnecessary liquidations by using collateral from all open positions.
* **Increased flexibility:** Margin can be utilized across all trades within the same account.
* **Risk management**: While cross-margining helps protect positions, traders must monitor leverage, as rapid market changes can lead to losses exceeding initial collateral.

In a future update, traders can use isolated margin to manage individual positions separately. Until then, traders can isolate positions by using sub-accounts.

### <mark style="color:$info;">Funding Rates</mark>

Perpetual futures don’t expire, so Carbon uses a funding rate mechanism to keep contract prices in line with the spot market.

* Positive funding rate → Longs pay shorts.
* Negative funding rate → Shorts pay longs.

Funding rates are exchanged between traders holding positions, ensuring the perpetual contract price stays close to the real market price.

**Funding Rates are carbon are displayed based on your direction. Clicking Long shows you the long funding rate (positive means you get paid, negative means you have to pay) and vice versa.**

### <mark style="color:$info;">Platform Fees</mark>

{% hint style="info" %}
**Currently, Carbon charges zero fees on all pairs.**
{% endhint %}

## <mark style="color:$info;">Key Trading Metrics & Risk Management</mark>

### <mark style="color:$info;">**Unrealized Profit & Loss (UPNL)**</mark>

Shows potential gains or losses if a position were closed at the current market price.

* Dynamic Evaluation: UPNL is calculated dynamically, reflecting the potential gains or losses a trader would incur if they decide to close their active positions at the prevailing market price.
* Formula: UPNL is computed by evaluating the difference between the average entry price of a position and the current index price, expressed in USD terms.&#x20;
* Continuous Update: The UPNL value is continuously updated to provide traders with the most accurate representation of their trading performance as market conditions change.

📌**Formula:**

```
UPNL = (Mark Price - Entry Price) * Position Size
```

### <mark style="color:$info;">**Open Interest (OI)**</mark>

Represents the total value of active perpetual contracts. If current OI reaches available OI, no new positions can be opened until existing ones close.

### <mark style="color:$info;">**Account Health**</mark>

Indicates the health of a trader's position. If the Equity Balance drops to the Maintenance Margin, the position risks liquidation.

📌**Formula:**

```
Account Health = (Equity Balance - Maintenance Margin) / Equity Balance
```

### <mark style="color:$info;">**Maintenance Margin**</mark>

The minimum balance required to keep a position open. If the Equity Balance falls to this level, liquidation occurs. This margin is locked and non-transferable, encompassing all open positions.

### <mark style="color:$info;">**Equity Balance**</mark>

A combination of account balance and UPNL, showing the trader’s real-time funds.

📌**Formula**:

```
Equity Balance = Allocated Balance + UPNL
```

### <mark style="color:$info;">**Initial & Locked Margin**</mark>

* Initial Margin → The required margin to open a position.
* Locked Margin → The portion of margin locked across open trades, acting as a buffer to prevent excessive leverage.

### <mark style="color:$info;">**Available for Orders**</mark>

The remaining balance is available for placing new trades.

📌**Formula:**

```
Available for Orders = Equity Balance - Locked Margin - Maintenance Margin
```

## <mark style="color:$info;">Withdrawals & Fraud-Proof Window</mark>

To maintain on-chain security, withdrawals undergo a fraud-proof verification period before processing. This mechanism helps prevent issues like double-spending. Future integrations may provide faster withdrawal solutions. Currently, instant withdrawal is available for up to $1,000.

<br>


---

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