Perpetual futures, which are crypto-asset derivatives based on futures contracts in traditional financial markets. A futures contract, on the other hand, is an agreement to buy or sell a commodity, currency or other financial asset at a predetermined price at a specific time in the future.
The difference between futures trading and spot trading
A general spot trading is one in which delivery is made instantly during the buying and selling process. Take BTC-USDT trading pair as an example. During the trading process, the trader sells 100USDT to get the equivalent value of BTC, after the transaction is completed, the trader no longer holds the sold USDT, but the equivalent value of BTC is worth 100USDT. The trader has the direct ownership of that part of BTC and enjoys the right to participate in community voting.
Spot trades are usually long (calls) while short (puts) trades are usually done with the help of leveraged trades.
Contracts are bought and sold to represent the value of a specific crypto asset. The trader does not own the underlying crypto asset in either a long or short position. Therefore, the trader holding the contract does not have the right to vote or participate in staking.
Contract trading is essentially trading in futures contracts on margin, and often involves leverage in the process, where the trader only needs to pay a certain percentage of margin to hold a higher value contract, thereby magnifying returns. However, while using leverage, the greater the gains that may be gained, the greater the losses that may be faced. For example, when using a 10x leverage to trade BTC-USDT contracts, the trader only needs a margin of 10USDT to hold a BTC position exposure worth 100USDT, and when the price of BTC rises by 5%, the profit that can be achieved by 10x leverage for that position exposure is (100USDT*5%-100USDT)10x=5USDT, the trader only The trader only used 10 USDT of margin to gain 5 USDT, which is a 50% return. But at the same time, if the price of BTC falls by 5%, the loss is 100*-5%*10x=-5USDT, meaning the margin of 10USDT brings a return of -50%.
The difference between perpetual futures trading and traditional futures trading
Traditional futures contract trading is an agreement to buy or sell a commodity, currency or other financial asset at a predetermined price at a specific time in the future. It is usually based on a specific underlying, such as agricultural products or precious metals, and delivery is made at a specific time at an agreed price.
A perpetual contract is an agreement to trade a financial asset that is not underlying a specific crypto asset, but does not have a specific delivery date, and the user can choose to hold the position at all times.
What are the types of perpetual futures in the crypto market?
Depending on the type of settlement currency, there are usually two types: USDT-margined and coin-margined contracts.
Coin Margined, or Coin-M, which are contracts that use bitcoin as the settlement currency, such as the BTC/USD trading pair. The process of collateralization, profit and loss settlement is done with BTC assets in the contract account. Since Bitcoin itself goes up and down a lot, the price of Bitcoin is also floating in addition to the price of the contract itself. Therefore, the coin standard is more likely to expand profits or losses.
USDT Margined, or USDT-M, is a contract that uses the stable coin USDT as the underlying for settlement, such as the BTC/USDT trading pair contract, whether long or short, requires a transfer of USDT to the account and uses USDT to settle the final profit or loss. As USDT itself is more stable in price, it can avoid additional ups and downs caused by price fluctuations of certain coins in contract trading.