What Are Perpetual Contracts?
Perpetual contracts are a type of derivative trading instrument that mimics spot trading but without an expiry date. Unlike traditional futures, these contracts allow traders to hold positions indefinitely, with settlements occurring periodically through a mechanism called funding fees.
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Key Features:
- No Expiry: Trade indefinitely without worrying about contract rollovers.
- Leverage: Amplify positions with flexible leverage options (e.g., 1x–100x).
- Settlement Assets: Profit/loss calculated in USD, BTC, or stablecoins like USDT/USDC.
- Mark Price: Used to determine liquidation triggers and unrealized P&L.
Core Concepts Explained
1. Mark Price vs. Market Price
- Market Price: The last traded price on the exchange.
- Mark Price: A weighted average of prices across multiple exchanges to prevent manipulation.
- Index Price: The underlying asset’s spot price derived from major markets.
2. Leverage and Margin
| Term | Description |
|---|---|
| Initial Margin | Collateral required to open a position (e.g., 10% for 10x leverage). |
| Maintenance Margin | Minimum equity needed to avoid liquidation (e.g., 5% of position value). |
| Liquidation | Automatic closure of positions when equity ≤ maintenance margin. |
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3. Funding Fees
Paid every 8 hours between long and short traders to anchor the contract price to the spot market. Fees vary based on market sentiment.
Trading Mechanics
Execution Types
- Market Orders: Instant execution at current prices.
- Limit Orders: Set custom entry/exit prices.
Risk Management
- Stop-Loss Orders: Automatically exit losing positions.
- Take-Profit Orders: Lock in gains at predefined levels.
FAQs
Q1: Can perpetual contracts be held forever?
Yes, but funding fees may affect long-term profitability.
Q2: How is liquidation price calculated?
It depends on leverage, entry price, and maintenance margin.
Q3: Why use mark price instead of market price?
Prevents “wick liquidations” during volatile spikes.
Q4: Are perpetual contracts riskier than spot trading?
Higher leverage increases risk but also potential returns.
Q5: How often are funding fees applied?
Typically every 8 hours, but check your exchange’s schedule.
Q6: Can I trade perpetuals without leverage?
Yes, by using 1x leverage (equivalent to spot trading).
Why Trade Perpetual Contracts?
- 24/7 Market Access: Trade crypto anytime, unlike traditional futures.
- Capital Efficiency: Leverage allows smaller capital outlays.
- Hedging Tools: Offset risks in spot portfolios.
For a seamless experience, ensure you understand the risks and tools available.