What are the practical teaching of perpetual contracts?

Perpetual contracts, perpetual futures lacking expiration dates, facilitate flexible trading by enabling traders to hold positions indefinitely without expiration concerns.

Oct 29, 2024 at 09:10 pm

Practical Teachings of Perpetual Contracts

Perpetual contracts are a type of futures contract that allow traders to speculate on the future price of an underlying asset without having to take physical delivery. They are a versatile and powerful tool that can be used for a variety of trading strategies. However, it is important to understand the unique characteristics of perpetual contracts before trading them.

1. Perpetual contracts are perpetual.

Unlike traditional futures contracts, which expire on a set date, perpetual contracts do not have an expiration date. This means that traders can hold positions for as long as they want without having to worry about them expiring worthless.

2. Perpetual contracts are margin traded.

Perpetual contracts are traded on margin, which means that traders only need to deposit a fraction of the total value of the contract in order to open a position. This allows traders to control a much larger position than they would be able to with a traditional futures contract.

3. Perpetual contracts are subject to funding rates.

Perpetual contracts are priced relative to the spot price of the underlying asset. When the perpetual contract price is above the spot price, traders who are long the contract will pay a funding rate to traders who are short the contract. When the perpetual contract price is below the spot price, traders who are short the contract will pay a funding rate to traders who are long the contract. Funding rates are typically paid every 8 hours.

4. Perpetual contracts can be used for a variety of trading strategies.

Perpetual contracts can be used for a variety of trading strategies, including:

• Scalping: Scalping is a trading strategy that involves taking small, frequent profits from small price movements.
• Day trading: Day trading is a trading strategy that involves opening and closing positions within the same trading day.
• Swing trading: Swing trading is a trading strategy that involves holding positions for several days or weeks.
• Trend following: Trend following is a trading strategy that involves following the trend of the market.

5. Perpetual contracts are a powerful tool, but they can also be risky.

Perpetual contracts are a powerful tool, but they can also be risky. It is important to understand the unique characteristics of perpetual contracts before trading them. If you are not comfortable with the risks involved, it is best to avoid trading perpetual contracts.