Are you curious about perpetual futures contracts in the cryptocurrency space? This guide covers everything you need to know—from their structure to their advantages over traditional trading instruments. As a crypto investor, leveraging diverse strategies is key to success. By the end, you’ll grasp how perpetual futures work, why they’re popular, and how to trade them effectively.
What Are Perpetual Futures Contracts?
Futures contracts are agreements to buy/sell assets at predetermined prices and future dates. These assets range from commodities (e.g., gold) to financial instruments (e.g., cryptocurrencies). Unlike traditional futures with fixed expiry dates, perpetual futures contracts never expire. This lets traders hold positions indefinitely, capitalizing on long-term trends.
Key features:
- No expiry: Trade without settlement deadlines.
- Funding rate: Ensures contract prices align with spot prices (more below).
- High liquidity: 75% of global crypto trading volume involves perpetual futures.
Key Features of Perpetual Contracts
1. Initial Margin
The collateral required to open a position (e.g., 1–10% of contract value).
2. Maintenance Margin
Minimum balance to keep positions open. If breached, traders must add funds or face liquidation.
3. Funding Rate
Periodic payments between long/short traders to tether contract prices to spot prices. Positive rates = longs pay shorts; negative = vice versa.
4. Mark Price
The fair value price (averaged across exchanges) preventing market manipulation.
5. Auto-Deleveraging (ADL)
Closes overleveraged positions to protect traders from extreme losses.
How Do Perpetual Contracts Work?
Example: A trader buys a BTC/USDT perpetual contract at $50.50. The contract’s value tracks BTC’s spot price via funding mechanisms:
- If the contract price < BTC price: Longs receive payments (encouraging buys).
- If the contract price > BTC price: Shorts receive payments (encouraging sells).
This equilibrium keeps prices aligned.
Perpetual vs. Traditional Futures
| Feature | Perpetual Futures | Traditional Futures |
|-----------------------|----------------------------|-----------------------------|
| Expiry | None | Fixed date |
| Settlement | Funding rate | Physical/cash delivery |
| Leverage | Higher (e.g., 100x) | Lower (e.g., 10x) |
Perpetual Futures vs. Leverage Trading
- Timeframe: Perpetuals = open-ended; leverage trades = short-term.
- Collateral: Perpetuals require crypto deposits; leverage trades use borrowed funds.
- Fees: Perpetuals charge funding rates; leverage trades incur interest.
How to Trade Perpetual Futures on XT
- Fund your futures wallet (supports USDT, crypto).
- Choose between USDⓈ-M (stablecoin) or COIN-M (crypto) contracts.
- Select leverage (e.g., 10x–100x).
- Place orders (limit, market, stop-loss).
👉 Start with XT’s Demo Trading
FAQ
Q: Are perpetual futures legal in the U.S.?
A: No, but they’re available globally.
Q: What’s the biggest risk?
A: Liquidation due to high leverage.
Q: How is PnL calculated?
A: (Exit price − Entry price) × Position size − Fees.
Final Thoughts
Perpetual futures offer flexibility and profit potential but demand risk management. Use stop-losses, monitor funding rates, and start small.
For a hands-on experience: