What is a USDT perpetual contract?

USDT perpetual contracts provide exposure to underlying cryptoassets without settlement upon expiration, using Tether as the settlement currency, featuring funding rates that adjust the position of longer and shorter traders.

Oct 22, 2024 at 09:24 pm

What is a USDT Perpetual Contract?

A USDT perpetual contract is a type of cryptoasset derivative that allows one to speculate on the future price of an underlying asset, in this case a cryptoasset such as Bitcoin, using Tether (USDT) as the settlement currency. It is similar to a traditional futures contract, but with a number of key differences, including:

1. No physical settlement: Perpetual contracts do not require the delivery of an underlying asset at its expiration date as traditional futures contracts do.
2. Rolling settlement: Perpetual contracts are open-ended and do not expire. Instead, they are settled in perpetuity, where the contract price follows the spot price of the underlying asset.
3. Funding rate: Perpetual contracts have a funding rate that is determined by demand and supply conditions. In general, the funding rate favors the party who has a longer position, and disfavors the party with a shorter position.

How does a USDT Perpetual Contract Work?

A USDT perpetual contract allows you to buy or sell an underlying asset without actually owning the asset. Instead, you are trading the contract, which is a derivative of the underlying asset. The price of the contract is based on the spot price of the underlying asset.

To enter into aUSDT perpetual contract, you need to open an account on a crypto asset exchange that offers perpetual contracts. There are many different exchanges that offer perpetual contracts, so it's important to do your research and find an exchange that is reputable and that you are comfortable using.

Once you have opened an account, you need to deposit funds into your account. You can deposit either fiat currency (such as USD or EUR) or cryptoassets (such as Bitcoin or Ethereum). Once you have deposited funds, you can start trading perpetual contracts.

When you trade a USDT perpetual contract, you are agreeing to buy or sell the underlying asset at a specified price at a future date. The price that you agree to buy or sell is called the strike price. The future date that you agree to buy or sell is known as the expiration date.

Example:

Let's say that you believe that the price of Bitcoin is going to rise in the next month. You can enter into a USDT perpetual contract to speculate on this outcome. You could buy a Bitcoin perpetual contract with a strike price of $20,000 and an expiration date of one month from now.

If the price of Bitcoin rises to $22,000 by the expiration date, you will make a profit on your contract. However, if the price of Bitcoin falls below $20,000, you will lose money on your contract. If the price of Bitcoin is trading at $22,000 at the time of the expiration, the exchange will settle your futures contract by charging the losing side (in this case, sellers) a fee. Then, the fee from the losing side will be redistributed to the winning side (in this case, buyers).