How do perpetual contracts work in the context of cryptocurrency trading?

3 answers

• Dec 16, 2021 · 3 years ago
  Perpetual contracts are a type of derivative product in cryptocurrency trading that allow traders to speculate on the price movements of an underlying asset without actually owning the asset. These contracts have no expiration date and are designed to mimic the behavior of spot trading. They are settled in the native cryptocurrency of the exchange and are typically traded with leverage, allowing traders to amplify their potential profits or losses. Unlike traditional futures contracts, perpetual contracts do not require the settlement of the underlying asset at a specific future date, making them more flexible and suitable for short-term trading strategies.
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• Dec 16, 2021 · 3 years ago
  Perpetual contracts work by utilizing a funding mechanism to ensure that the contract's price closely tracks the spot price of the underlying asset. This funding mechanism is used to incentivize traders to keep the contract price in line with the spot price. If the contract price deviates from the spot price, funding payments are exchanged between long and short positions to bring the contract price back in line. This mechanism helps to prevent large price discrepancies and ensures that the perpetual contract remains an accurate reflection of the underlying asset's value.
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• Dec 16, 2021 · 3 years ago
  Perpetual contracts have gained popularity in the cryptocurrency trading community due to their unique features. They offer traders the ability to trade with leverage, providing the opportunity for higher potential returns. Additionally, perpetual contracts allow traders to take both long and short positions, meaning they can profit from both rising and falling markets. However, it's important to note that trading with leverage can also result in significant losses, so it's crucial for traders to have a solid risk management strategy in place. As with any investment or trading activity, it's always recommended to do thorough research and seek professional advice before engaging in perpetual contract trading.
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