How DERPs work

This page explains how derp.trade works in plain language - no formulas, no code. For the full technical specification, head to the protocol docs.

The basics

A derivative is a financial contract whose value is based on the price of something else. On derp.trade, that "something else" is a token - SOL, WIF, or any other Solana token.

When you trade on derp.trade, you are not buying or selling the token itself. Instead, you are opening a position that tracks the token's price:

• Long - you profit if the price goes up.
• Short - you profit if the price goes down.

You can use leverage to amplify your position. For example, 10x leverage means a 1% price move gives you a 10% gain (or loss). All positions are denominated in USDT - you deposit USDT as collateral and receive your profits in USDT.

How trading works

Here is the flow of a typical trade on derp.trade:

1. Pick a market - browse the available markets (e.g., SOL-DERP, WIF-DERP) or create your own.
2. Choose long or short - decide whether you think the price will go up or down.
3. Set your position size and leverage - enter the amount of USDT you want to put up as collateral and choose your leverage multiplier.
4. The AMM takes the other side - there is no waiting for a counterparty. The trade executes instantly.
5. Your PnL updates in real time - as the token's price moves, your unrealized profit or loss changes.
6. Close when you are ready - or get liquidated if your collateral runs out.

The AMM: your trading partner

On traditional exchanges, you need another person on the other side of your trade. On derp.trade, an automated market maker (AMM) fills that role. The AMM is a smart contract that is always willing to trade with you.

Because the AMM is always available, markets can exist for tokens with low trading volume. There is no minimum liquidity requirement - the AMM handles everything.

The AMM earns trading fees and funding payments, which build up its liquidity over time. The more a market is traded, the deeper its liquidity becomes.

Funding rates

To keep markets balanced, derp.trade uses funding rates. If many more traders are long than short (or vice versa), the majority side pays a small fee to the minority side. This encourages traders to take the less popular side and keeps the market healthy.

Funding is charged continuously - every 15 seconds in small amounts. You can see the current funding rate for any market on the trading page before you open a position.

Leverage and liquidation

Leverage lets you control a larger position with less collateral. For example, with 10x leverage and 10 USDT of collateral, you control a 100 USDT position.

The tradeoff is risk. Higher leverage means your position gets liquidated more easily. Liquidation happens when your losses eat through your collateral - at that point, the protocol closes your position and you lose your deposited collateral.

Before opening any trade, check your liquidation price - the price at which your position would be liquidated. The trading UI shows this clearly.

DERPs vs. traditional perps

Ready to trade?

Get started with the step-by-step guides:

1. Set up your wallet - install a wallet and fund it with USDT.
2. Open your first trade - walk through your first position from start to finish.