What are the differences between perpetual futures contracts and traditional futures contracts in the cryptocurrency market?

3 answers

• Dec 16, 2021 · 3 years ago
  Perpetual futures contracts and traditional futures contracts are both popular trading instruments in the cryptocurrency market. Perpetual futures contracts are designed to mimic the price of the underlying asset, while traditional futures contracts have a fixed expiration date. Perpetual contracts do not have an expiration date and can be held indefinitely. This makes them more flexible for traders who want to hold positions for longer periods of time. Traditional futures contracts, on the other hand, have a set expiration date and require the delivery of the underlying asset at that time. This makes them more suitable for hedging or speculating on short-term price movements. Overall, the main difference between the two is the absence of an expiration date in perpetual futures contracts, which allows for more flexibility in trading strategies.
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• Dec 16, 2021 · 3 years ago
  Perpetual futures contracts and traditional futures contracts have different funding mechanisms. Perpetual contracts use a funding rate to ensure that the contract's price stays close to the spot price of the underlying asset. This funding rate is exchanged between long and short positions every few hours. In contrast, traditional futures contracts are settled at a predetermined price on the expiration date. Another difference is the funding cost associated with perpetual futures contracts. Traders who hold positions in perpetual contracts may have to pay or receive funding based on the difference between the contract's price and the spot price. This funding cost can be seen as a fee for holding the position. It's important to consider these factors when choosing between perpetual and traditional futures contracts in the cryptocurrency market.
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• Dec 16, 2021 · 3 years ago
  At BYDFi, we believe that perpetual futures contracts offer several advantages over traditional futures contracts. The absence of an expiration date allows traders to hold positions for as long as they want without worrying about contract settlement. Additionally, perpetual contracts are more liquid and have higher trading volumes compared to traditional futures contracts. This means that traders can enter and exit positions more easily, reducing the risk of slippage. However, it's important to note that perpetual contracts also carry some risks. The funding mechanism and funding costs associated with perpetual contracts can impact the profitability of trades. Traders should carefully consider these factors and their trading strategies before choosing between perpetual and traditional futures contracts.
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