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What is the difference between Bitcoin leveraged trading and perpetual contract trading?
Perpetual contracts offer higher leverage ratios, but they are considered more speculative and volatile than leveraged trading, where traders trade physical Bitcoin assets.
Oct 23, 2024 at 09:12 am
Difference Between Bitcoin Leveraged Trading and Perpetual Contract Trading
- Trading Instrument
- Leveraged Trading: Trades physical Bitcoin (BTC) assets using leverage.
- Perpetual Contract Trading: Trades a futures contract that tracks the price of BTC but does not result in physical asset delivery.
- Settlement
- Leveraged Trading: Transactions are settled in the underlying asset (BTC) at the end of the trading period or when the position is closed.
- Perpetual Contract Trading: Contracts have no predefined settlement date and can be held indefinitely. Settlements occur at the contract price when positions are closed.
- Collateral
- Leveraged Trading: Requires traders to post margin in the form of BTC or a stablecoin.
- Perpetual Contract Trading: Also requires margin, but typically in stablecoins or a basket of assets.
- Leverage
- Leveraged Trading: Leverage ratios vary depending on the trading platform, typically ranging from 2x to 100x.
- Perpetual Contract Trading: Leverage ratios are generally higher, reaching up to 125x or even more.
- Risk
- Leveraged Trading: Higher leverage increases potential profits but also carries greater risk of significant losses.
- Perpetual Contract Trading: While offering a wider range of leverage options, perpetual contracts are generally considered more speculative and volatile.
- Funding Rate
- Leveraged Trading: No funding rate applies.
- Perpetual Contract Trading: A funding rate is paid or received on a regular basis (typically every 8 hours) to align the contract price with the spot price of BTC.
Key Differences Summary
| Feature | Leveraged Trading | Perpetual Contract Trading |
|---|---|---|
| Trading Instrument | Physical Bitcoin (BTC) | Futures contract |
| Settlement | Underlying asset | Contract price |
| Collateral | BTC or stablecoin | Stablecoin or asset basket |
| Leverage | Typically 2x to 100x | Up to 125x or more |
| Risk | High with increased leverage | Speculative and volatile |
| Funding Rate | Not applicable | Paid or received regularly |
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