Perpetual futures are a type of derivative contract that allows clients to gain exposure to the price movement of an asset - without ever owning the underlying asset itself and without a fixed expiry date.
How perpetual futures work:
Like traditional futures contracts, perpetual futures allow you to take a long position (if you believe the price will rise) or a short position (if you believe the price will fall). However, unlike traditional futures, they do not expire. This means you can hold a position for as long as you like - assuming you maintain sufficient margin and meet the platform’s margin requirements.
The role of funding rate:
Since perpetual futures do not expire, they use a mechanism called the funding rate to ensure the contract price stays in line with the price of the underlying asset (also known as the “spot price”). Funding payments are exchanged between long and short traders at regular intervals (for example, every four hours). Whether you pay or receive funding payments depends on market conditions and your position.
Why traders use perpetual futures:
perpetual futures have become one of the most widely used products for crypto-asset underlying. Here’s why:
- No Expiry: You can hold positions indefinitely, unlike dated futures which must be rolled over or settled.
- Leverage: Traders can increase their exposure by using leverage, depending on eligibility and risk profile.
- Two-Way Trading: You can profit from both rising and falling markets.
- Efficient Execution: Trades are settled quickly and efficiently, especially on platforms like One Trading.
Perpetual futures are designed to give traders continuous exposure to market movements, without the operational complexity of traditional futures contracts. They are flexible, efficient, and - when traded on a regulated platform - can provide a high level of security and transparency.
Investing involves risks. The value of investments can go up as well as down and you may receive back less than your original investment or lose your entire investment. Investing with leverage means the value of your investment fluctuates more than the price of the underlying asset. One Trading does not provide investment advice and investors should make their own decisions or seek independent advice.