A Perpetual Contract is a derivative product that is similar to a traditional Futures Contract. An agreement to buy or sell a commodity at a predetermined price at a specified time in the future. But with one main difference: contrary to Futures, Perpetual Contracts do not have an expiry. So you can hold a position for as long as you like. In addition, perpetual contracts mimic the margin-based spot market and hence trade close to the Index Price. This allows you to amplify the outcome of the deal but it also means that a decrease in the price of a commodity equals to your initial margin. The percentage of the total Funds you provided as collateral) will automatically liquidate your equity and close your position.
FAQ1: Do I have to return the funds I borrow?
No, you will be only subjected to a daily fee of 1% but other than that you will retain the profit in its entirety. Naturally, if the price of your commodity drops; your position will be automatically liquidated in the event the price of the commodity reaches your initial margin.
FAQ2: Is leverage trading risky?
Trading perpetual contracts amplify the outcome of any deal, this means that you can yield bigger profits. But also that a decrease in your commodity price will liquidate your equity and close your position much faster. It is important to note that Phemex provides you with instruments to manage your risk.
FAQ3: How does my position stay open?
Phemex makes use of Funding, a periodic payment exchanged every 8 hours to keep the position open, reduce basis, and tether the price back to spot price.
FAQ4: Can perpetual contracts be settled?
No, contrary to futures contracts there are no settlement options for perpetual contracts.