Perpetual Contracts Definition
Perpetual Contracts are a type of futures contract, primarily used for cryptocurrency trading, that doesn’t have an expiration date. This allows the trader to hold a position indefinitely, unlike traditional futures contracts which expire at a specific time.
Perpetual Contracts Key Points
- Perpetual contracts are a type of futures contract without an expiry date.
- These contracts are primarily used in cryptocurrency trading.
- Traders can hold the position for as long as desired.
What are Perpetual Contracts?
Perpetual Contracts function much like traditional futures contracts but come with the unique trait of not having an expiration or settlement date. This feature allows traders to keep a position for an indefinite period, unlike traditional futures contracts that must be settled on a predetermined date.
Why are Perpetual Contracts used?
Perpetual Contracts are used primarily in the cryptocurrency markets, particularly for Bitcoin trading. These contracts permit traders to take long or short positions on the underlying cryptocurrency’s price movement without the need to own the actual asset.
Who uses Perpetual Contracts?
Perpetual Contracts are leveraged products, and as such, they attract traders looking for opportunities on the price movements of Bitcoin and other cryptocurrencies. However, given their derivative status and the high risk of leverage, they may not be suitable for everyone.
When are Perpetual Contracts used?
Perpetual Contracts can be used at any time by the trader, given the non-expiring nature of the contract. Their usage is largely dictated by the market sentiment and the trader’s individual strategy and risk tolerance.
Where can Perpetual Contracts be traded?
Perpetual Contracts can be bought and sold on various cryptocurrency exchanges and trading platforms. These platforms blend Centralized Finance (CeFi) elements with Decentralized Finance (DeFi) mechanisms to create a trading environment that is conducive to such derivatives.
How do Perpetual Contracts work?
In essence, Perpetual Contracts work by enabling traders to speculate on the future value of a cryptocurrency without an expiration date. They do this through a mechanism called ‘funding rate’ exchanged between the buyer and the seller of the contract. When the contract’s price deviates too much from the underlying asset’s spot price, this funding rate acts as an anchor, pulling the price back in line.
