Crypto perpetuals are cryptocurrency futures contracts without expiration dates. These financial instruments allow traders to maintain leveraged positions indefinitely while tracking cryptocurrency prices.
The structure differs from traditional futures contracts.
Perpetuals combine elements of spot trading and futures markets into a single, continuous contract. This design enables traders to hold positions without managing contract rollovers or expiration dates.
Leverage represents a key feature of perpetual contracts.
Traders can access positions worth many times their initial investment, often exceeding 100 times their margin. This amplification increases both potential returns and risks.
Risk management systems protect market stability.
Insurance funds help cover extreme losses, while auto-deleveraging mechanisms redistribute profits during high volatility. These safeguards maintain market function during stressed conditions.
Perpetual contracts originally operated as inverse futures. This structure quoted Bitcoin prices in US dollars while conducting settlements in Bitcoin. The design enabled exchanges to operate without traditional financial licenses while maintaining dollar-based pricing.
Modern perpetuals now include various settlement options.
The widespread adoption of stablecoins has enabled different contract structures. Traders can choose between inverse contracts and linear contracts settled in stablecoins.
The trading mechanism resembles contracts for difference.
However, perpetuals offer standardized terms across all time horizons and leverage levels. This uniformity creates a more liquid and accessible market compared to traditional CFD trading.
Trading perpetuals requires understanding funding rates. These periodic payments between buyers and sellers keep perpetual prices aligned with spot markets.
The rates fluctuate based on market conditions and position imbalances.
