How do perpetual futures contracts work in the context of digital currencies?

3 answers

• Dec 25, 2021 · 3 years ago
  Perpetual futures contracts are a type of derivative instrument that allows traders to speculate on the price movements of digital currencies without actually owning the underlying assets. These contracts have no expiration date, which means they can be held indefinitely. Traders can go long (buy) or short (sell) these contracts, depending on their market outlook. The contract's price is typically tied to the spot price of the digital currency, with additional factors such as funding rates and funding intervals affecting the contract's value. It's important to note that perpetual futures contracts are settled in the digital currency itself, rather than in fiat currency.
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• Dec 25, 2021 · 3 years ago
  Perpetual futures contracts work by utilizing a funding mechanism to maintain the contract's price in line with the spot price of the digital currency. This funding mechanism involves the exchange of interest payments between long and short positions. If the contract's price deviates from the spot price, a funding rate is applied to the position holders to bring the price back in line. This funding rate is calculated based on the difference between the contract's price and the spot price, as well as the funding interval. By using this funding mechanism, perpetual futures contracts ensure that the contract's price closely tracks the spot price, providing traders with a reliable instrument for price speculation.
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• Dec 25, 2021 · 3 years ago
  Perpetual futures contracts are a popular trading instrument offered by various cryptocurrency exchanges, including Binance, BitMEX, and other reputable platforms. These contracts provide traders with the ability to leverage their positions, allowing them to amplify potential gains or losses. However, it's important to exercise caution when trading perpetual futures contracts, as the use of leverage can also magnify risks. Traders should carefully manage their risk exposure and consider implementing risk management strategies, such as setting stop-loss orders and diversifying their trading portfolio. It's always advisable to thoroughly understand the mechanics and risks associated with perpetual futures contracts before engaging in trading activities.
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