ot trading is equal to 1 times the perpetual contract to do long e contract is risky, please trade carefully Perpetual futures, also known as perpetual swaps or "perpetual contracts", are derivatives contracts that allow traders to speculate on the future price of assets without an maturity date. Unlike traditional futures contracts with fixed maturity dates, perpetual futures can be held indefinitely. Sustainable futures is an increasingly popular financial tool, especially in cryptocurrency trading, which is used to speculate in cryptocurrencies such as Bitcoin and Ethernet Fong, but can also be applied to other assets such as commodities and indices. They are popular because they are more leveraged than the spot cryptocurrency market and may be more liquid. Perpetual futures can be compared with perpetual options (XPO), which also have no expiration date. Keystone
- Perpetual futures are derivatives contracts with no maturity date that allow traders to speculate on asset prices indefinitely. two。 Perpetual futures are particularly popular among traders in the cryptocurrency market.
- The capital rate mechanism helps to keep the perpetual contract price close to the spot price of the underlying asset.
- Leverage is a key feature of perpetual contracts, allowing traders to control larger positions with less money, but it also comes with greater risk.
Learn about sustainable futures
Perpetual futures are derivative contracts that allow traders to speculate about changes in the price of the underlying asset without having to own or deliver the asset. Unlike traditional futures contracts with fixed maturity dates and settlement prices, perpetual futures have no maturity dates and are constantly adjusted through a mechanism called capital rates. Perpetual futures are one of the most popular and liquid instruments in the cryptocurrency market, with daily trading volume exceeding $100 billion by the end of 2022. They offer traders a variety of advantages, such as leverage, hedging and arbitrage opportunities. However, they also involve some risks and challenges, such as excessive leverage, liquidation and volatility. The capital rate mechanism helps to keep sustainable futures prices in line with spot prices because it encourages traders to hold positions that bring the two prices closer. When perpetual contract prices are significantly higher or lower than spot prices, capital rates become more substantial, encouraging traders to stand on the opposite side of the market and reduce price differences.
Perpetual contracts and capital rates
The fund rate is a mechanism to ensure that the perpetual contract price is close to the spot price of the underlying asset. It is a regular payment exchanged between the contract buyer (long) and the seller (short) according to the difference between the contract price and the spot price, which is similar to a swap contract in some ways. Capital rates can be positive or negative, depending on market conditions. When the capital rate is positive, it means that the contract price is higher than the spot price, also known as futures premium. In this case, the bulls pay the amount of money to the bears. When the capital rate is negative, it means that the contract price is lower than the spot price, which is called spot premium. In this case, the bears pay the amount of money to the bulls. Capital rates are usually calculated based on a combination of perpetual contract prices, spot prices and interest rate components. The interest rate reflects the cost of borrowing the underlying asset, while the premium index reflects the difference between the contract price and the spot price. The formula may also include upper and lower limits to limit the possible maximum and minimum financing rates. It is important to note that the exact formula may vary, depending on the specific exchange or platform you use. The capital rates for most exchanges are usually applied every eight hours, but some exchanges may have different intervals. Capital rates are not charged by the exchange, but by the traders themselves. Therefore, it will not affect the profitability of the exchange, but only the profitability of traders. pital rate is an important factor to consider when trading perpetual futures, because it will affect your return and risk. If you are long, high positive capital rates may erode your profits, while if you go short, high negative capital rates may erode your profits. On the contrary, if you go short, a lower positive capital rate can increase your profit, while if you do long, a lower negative capital rate can increase your profit.
The main features of a perpetual contract
- No maturity date: as mentioned earlier, one of the main characteristics of perpetual futures is that there is no maturity date. This allows traders to maintain positions indefinitely without the need to close positions or extend contracts. two。 Fund rate: in order to bring the price of a perpetual contract close to the spot price of the underlying asset, a mechanism called fund rate is used. The rate is paid by one side of the contract to the other, depending on the difference between the perpetual futures price and the spot price.
- Leverage: perpetual futures enable traders to use leverage, allowing them to control larger positions with less money. Leverage can magnify profits as well as losses, so it is important to properly manage risks.
- Margin requirements: traders need to maintain a minimum margin balance to maintain a position. If the balance falls below the maintenance margin requirement, the trader may face liquidation and his position will be automatically closed to prevent further losses.
Perpetual contract trading strategy
Speculation: this involves establishing a long or short position in a perpetual futures contract based on your expectations of the future price direction of the underlying asset. For example, if you think bitcoin will appreciate, you can buy a perpetual bitcoin futures contract and profit from the rising price. On the contrary, if you think Bitcoin will depreciate, you can sell Bitcoin perpetual futures contracts and profit from falling prices. eculation is a high-risk and potentially high-return strategy, which requires careful analysis and risk management. Trend following: Traders can use technical analysis to identify market trends and establish long or short positions accordingly. This strategy involves following the momentum of the market, opening positions in the direction of the trend and closing positions when the trend reverses. Hedging: perpetual futures can be used to hedge the existing position of the underlying asset. For example, traders who hold bitcoin can sell perpetual futures to prevent potential price falls. Arbitrage: traders can take advantage of the price difference between the sustainable futures market and the spot market and use a strategy called arbitrage to make a profit. This involves buying assets in one market and selling them in another market at the same time, taking advantage of the price difference. rpetual futures are settled in cash, which means that physical delivery of the underlying asset is not required.
Advantages and disadvantages of perpetual contract
Pros: they have no maturity date and allow traders to maintain positions indefinitely. In some cases, they can be more liquid than the spot market. Leverage allows traders to control larger positions with less money. Disadvantages: leverage can magnify losses and profits, thereby increasing risk. Margin requirements and liquidation risks require careful risk management. Depending on the market situation, the capital rate may be very high.
When did the perpetual contract first appear?
The concept of perpetual futures was first proposed by Robert Shiller in a 1993 paper. The goal is to establish permanent claims on cash flows from illiquid assets such as real estate. Perpetual futures first appeared on the cryptocurrency market around 2016. Cryptocurrency derivatives trading platform BitMEX is widely believed to have launched the first Bitcoin perpetual swap contract.
How does the permanent future fund rate work in practice?
The capital rate applies to the nominal value of the trader's open position. For example, if a trader has a long position worth $10000 and the capital rate is + 0.01%, they will pay $1 to the holder of the short position. Similarly, if traders have a short position worth $10000 and the capital rate is-0.01%, they will receive $1 from the holder of the long position. In many cases, capital rates are applied every eight hours and payments are exchanged. In this example, as long as the capital rate and the nominal value of the open position remain unchanged, $1 is paid every eight hours (or three times a day).
Are perpetual contracts regulated?
The regulation of perpetual futures varies from jurisdiction to jurisdiction and to the exchange that provides the product. In some countries such as the United States, sustainable futures fall under the jurisdiction of regulatory bodies such as the Commodity Futures Trading Commission (CFTC). However, many cryptocurrency exchanges that offer sustainable futures are located in other more loosely regulated jurisdictions. As a trader, it is important to understand the regulatory environment of the platform you are using and to ensure compliance with local laws.
Bottom line
Perpetual futures offer a unique opportunity for traders interested in speculating on the future price of an asset without being constrained by the expiration date. With features such as leverage and no expiry date, perpetual futures are an attractive option for those who wish to take advantage of market trends or hedge existing positions. However, understanding the risks associated with perpetual futures trading (such as leverage and margin requirements) and adopting effective risk management strategies is critical. For traders who are comfortable with these risks and fully understand the perpetual futures mechanism, this financial instrument can be a valuable addition to their trading arsenal. As with any investment, thorough research and a thorough understanding of the market are essential before trading perpetual futures.