Before you start trading, you should understand the difference between a Futures Contract and a Perpetual Contract. So, let’s get into the topic and find out about what the differences are and where they can be traded.
Firstly, what is a Futures Contract?
A Futures Contract is simply an agreement between two parties to sell or buy an asset at a fixed price on a predetermined ‘future’ date. Let’s imagine that two investors enter one of these contracts with the underlying asset being Bitcoin. One of them promises to sell Bitcoin at an agreed price while the other one promises to buy them. At the time that the contract is due, both of them must fulfill their promise regardless of where the price of Bitcoin is actually at. If the future price is higher than the original agreed price, the seller loses and the buyer wins. The opposite is true if the price goes down.
And a Perpetual Contract?
A Perpetual Contract works much in the same way that a Futures Contract does. However, there is one significant difference. As the name implies, a Perpetual Contract is one that does not have an expiration date.
In the context of trading on Phemex, it is important to know that traders investing in Perpetual Contracts, do not actually need to hold the underlying asset (in this case Bitcoin). They can still profit by predicting the movement of Bitcoin prices as these contracts are designed to mirror the prices of their underlying assets (for more information on this process, view What is a Funding Rate?). Once the contract executes or closes, Phemex allows the difference in prices to be settled in either USD or BTC.
The primary benefit of Perpetual Contracts is that you are allowed to hold these indefinitely. The lack of an expiration or execution date means that even when prices move against your position, you are not immediately stuck with a losing trade. Instead, as long as you have enough funds to maintain your positions, you can continue to hold and wait until prices move in your favor again.
How can Perpetual Contracts be more beneficial than Futures Contracts?
Consider this example. Say that you are absolutely certain that the price of Bitcoin will climb. Unfortunately, you do not know how long it will take to do so. If the price has not climbed by the time your Futures Contract expires, you are stuck with a bad trade. However, with a Perpetual Contract, you can hold your position indefinitely. This way, you can maximize your chances of success. In addition, at Phemex, you can trade Perpetual Contracts with up to 100x leverage.
Where can I trade it?
Most cryptocurrency platforms do not offer perpetual contracts for trading. A new player entered the market: Phemex, the fastest and trustworthy cryptocurrency exchange platform in the market. Besides EOS perpetual contracts, Phemex offers Bitcoin, Ethereum, Ripple and Litecoin with up to 100x leverage.
Some important Q&A
1: Is leverage trading risky?
Trading perpetual contracts amplifies the outcome of any deal, this means that you can yield bigger profits. But it also means 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.
2: 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.
3: Can perpetual contracts be settled?
No, contrary to Futures Contracts there are no settlement options for Perpetual Contracts.
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