What is a Perpetual Futures?
A perpetual futures is a type of futures contract with no expiration date. Traders can hold positions indefinitely until they decide to close them, without worrying about settlement on a fixed expiration date. Perpetual futures maintain price alignment with the spot market through a funding rate mechanism.
What is a Traditional Futures?
A traditional futures has a fixed expiration date. When the contract reaches its expiration, all open positions are settled, either through cash settlement or physical delivery, depending on the contract type.
Key Differences
Expiration Date
- Perpetual Futures: No expiration date; traders can hold positions indefinitely.
- Traditional Futures: Has a set expiration date, and all positions are settled at expiry.
Funding Rate
- Perpetual Futures: Uses a funding rate to keep the price close to the spot price, with periodic payments between long and short positions.
- Traditional Futures: No funding rate; prices fluctuate based on supply and demand.
Price Tracking Mechanism
- Perpetual Futures: Prices remain close to the spot market due to the funding rate mechanism.
- Traditional Futures: Prices may diverge from the spot price as expiration approaches, influenced by market speculation and expectations.
Leverage and Risk
- Perpetual Futures: Offers higher leverage, up to 200x on BitTap, making it suitable for short-term and high-risk trading.
- Traditional Futures: Generally lower leverage, more suited for medium- to long-term investment strategies.
Settlement Method
- Perpetual Futures: No expiration, so no physical delivery; all trades are settled in cash.
- Traditional Futures: Settled at expiration, either through cash settlement or physical delivery.