Trading
Pay or receive fixed
Which side of a swap does what, and who each one is for.
| Pay fixed | Receive fixed | |
|---|---|---|
| Pays | the fixed rate | SOL-PERP funding |
| Receives | SOL-PERP funding | the fixed rate |
| Comes out ahead when | funding averages above the rate | funding averages below the rate |
| In the program | the long | the short |
| Takes quotes from | receivers | payers |
When funding is negative, the floating leg runs the other way: the receiver of fixed is paid funding on top of the fixed rate, and the payer pays both.
Receive fixed
Receiving fixed is for a trader who already collects funding and wants to know the number in advance. The usual case is a basis trade: long spot SOL, short the SOL perp on Phoenix. The short receives funding while it is positive and pays it while it is negative.
On Tack the same trader receives a fixed rate and pays the floating leg. The floating leg is Phoenix's SOL funding, the same stream the Phoenix short collects, so the two cancel and the fixed rate is what is left.
Sizing the hedge
The floating leg is funding on N ÷ P0 SOL, where P0 is the market's reference price. To cancel the funding on a Phoenix short of B SOL, use a notional of B × P0.
The hedge holds in SOL, not in dollars: if SOL's price moves, the funding on 100 SOL moves with it on both sides, and the fixed leg stays on $15,000.
Pay fixed
Paying fixed is a view that funding will run above the rate. The payer receives SOL-PERP funding and pays the fixed rate on the notional. If funding averages 12% a year to maturity on a swap struck at 8%, the payer makes about 4% a year on the notional for the time it was open; if funding averages 2%, the payer loses about 6%.
It also hedges the other way round: a trader long SOL-PERP pays funding while it is positive. Paying fixed on Tack receives that funding back and swaps it for a known cost.
Changing your mind
Tack has no early close. To take the floating exposure off before maturity, open the opposite side in the same maturity: the two floating legs cancel and what is left is the difference between the two fixed rates. Both positions keep their own collateral until they settle at maturity.