Perpetual Futures

Perpetual futures are derivative products traded on cryptocurrency exchanges. Like other futures contracts, they enable the buying and selling of an asset (typically a cryptocurrency) at a specific price on a future date. However, unlike other futures contracts, perpetual futures do not have a specific expiration date and trade indefinitely.

Perpetual futures often offer the opportunity for leveraged trading. Leverage allows investors to take larger positions with a smaller capital. For example, with 10x leverage, you can take a position up to 10 times the value of your investment. However, leveraged trading can be risky and has the potential for both significant profits and losses.

Perpetual futures trades are typically funded through a funding rate. The funding rate is used to balance the positions between buyers and sellers when holding them indefinitely. Depending on the direction of your position, you either receive or pay the funding rate to finance the other side. This helps perpetual futures to trade at a price close to the spot market.

Perpetual futures trades are associated with the spot market price and may have a premium or discount. If the perpetual futures price is higher than the spot market price, it is said to have a premium. If the perpetual futures price is lower than the spot market price, it is said to have a discount. This price difference can create arbitrage opportunities and help correct price imbalances in the markets.

Perpetual futures are popular instruments for speculating on volatile assets like cryptocurrencies or implementing risk management strategies. However, they should be used with caution due to the high leverage and volatility involved. Investors should carefully assess market conditions and their risk tolerance before using these derivative products.