Here we will introduce you to crypto perpetual swap contracts.
- There are about 150-250 perpetual markets on the biggest crypto exchanges
- Crypto perpetual swaps have no end date, and they are designed to track the underlying spot market price.
- Leverages ranges from 100x to 225x
Where to Trade Crypto Perpetual Contracts?
There are many excellent crypto trading sites for perpetual contracts. Compare the number of open perpetuals swap markets in the table below.
- Platforms
- Perpetual Trading
- SignUp
Read about the lowest crypto futures trading fees. Also, see Sign up for bonuses and offers with terms and conditions.
What is a crypto perpetual swap?
➤Perpetual Crypto swaps are derivative contracts with no expiration date.
They let you buy or sell the value of something (that something is Bitcoin but is usually called an “underlying asset”).
There are several advantages to perpetual swap contracts:
- There is no expiry date (You can hold it as long as you want as you don’t get liquidated)
- The underlying asset is never traded (Any custody issues)
- It is straightforward to short, even with leverage
What are crypto derivatives?
Crypto derivatives is a financial instrument other than the underlying asset.
Crypto derivatives derive value from an underlying crypto asset.
Example: If you own a Bitcoin derivative, you don’t own any real Bitcoin. You own a financial instrument with agreed definitions between two parties.
What crypto derivatives are there?
Crypto futures, inverse futures, perpetuals, leveraged tokens, CFDs, and options are the most traded crypto derivative financial instruments on the market.
Crypto derivative market VS spot market
Can I go short on a perpetual crypto swap?
Yes, there are shorting possibilities with perpetual swaps.
Crypto Perpetual Swap Contracts VS Futures
➤Both perpetuals and futures are both crypto derivative trading contracts.
However, specific definitions separate them.
Crypto Futures
➤Crypto futures contracts obligate the parties to transact the underlying asset at a predetermined future date and price. They are not designed to track the spot market since they are expectations of the spot market price on a specific date in the future.
With crypto futures, the buyer must purchase, or the seller must sell crypto at the set price, regardless of the current market price at the expiration date.
The futures are not connected to the spot trading price in the same way as the perpetual contracts. Therefore, the price often deviates from a premium or a discount.
There is always a rollover risk in crypto futures trading if you want to buy a new contract when yours expire.
Crypto Perpetuals
➤Crypto perpetual swaps have no expiration date and they are designed to track the underlying spot market.
Perpetuals trade close to the spot price because of a phenomenon called funding rate.
Perpetual funding rate means that the contracts are designed to trade close to the spot price of the underlying asset.
What is the perpetual funding rate?
If the perpetual trades at a premium (above the spot price), the long traders pay the funding rate to the short sellers. The market conditions set the funding rate but generally 0.03% daily.
If the perpetual trades at a discount (lower the spot price), the short traders pay the funding rate to the long buyers.
Crypto Perpetual Swap Contracts VS Futures
➤Both perpetuals and futures are both crypto derivative trading contracts.
However, specific definitions separate them.
Crypto Futures
➤Crypto futures contracts obligate the parties to transact the underlying asset at a predetermined future date and price. They are not designed to track the spot market since they are expectations of the spot market price on a specific date in the future.
With crypto futures, the buyer must purchase, or the seller must sell crypto at the set price, regardless of the current market price at the expiration date.
The futures are not connected to the spot price in the same way as the perpetual contracts. Therefore, the price often deviates from a premium or a discount.
There is always a rollover risk in crypto futures trading if you want to buy a new contract when yours expire.
Crypto Perpetuals
➤Crypto perpetual swaps have no expiration date and they are designed to track the underlying spot market.
Perpetuals trade close to the spot price because of a phenomenon called funding rate.
Perpetual funding rate means that the contracts are designed to trade close to the spot price of the underlying asset.
What is the perpetual funding rate?
If the perpetual trades at a premium (above the spot price), the long traders pay the funding rate to the short sellers. The market conditions set the funding rate but generally 0.03% daily.
If the perpetual trades at a discount (lower the spot price), the short traders pay the funding rate to the long buyers.
Bitcoin Perpetual Swap Contracts and Risks
Bitcoin perpetual swap trading, like all other instruments, carry its own set of risks that traders should be aware of. The most significant of those are:
- The funding rate might eat up your profit if you hold the perpetual contract for a long time
- You might experience volatility decay of your contract if you hold it for a long period
- The pair’s value movement might go against investors’ predictions (no matter if fiat or crypto).
- Possibility of harmful market manipulation by a platform
- Crypto-only pairs are even more volatile than fiat
