Perpetual futures are a type of financial derivative that allows traders to speculate on the price of an asset without owning it directly. Unlike traditional futures contracts, perpetual futures do not have an expiration date. This means traders can hold their positions indefinitely, as long as they maintain the required margin and funding payments.
A perpetual futures contract mirrors the price of the underlying asset it tracks, such as a stock index, commodity, or currency pair. Its price stays close to the spot market through a mechanism called the funding rate. This rate is a periodic payment exchanged between long and short traders, helping the contract’s price align with the real market price of the underlying asset.
The absence of expiry makes perpetual futures highly flexible for both traders and investors. They can enter or exit positions at any time, without worrying about contract rollovers or settlement dates. This feature has made perpetual futures especially popular in markets that trade continuously, where participants want uninterrupted exposure to price movements.
Perpetual futures can be used for several purposes. Some traders use them to hedge against price fluctuations in assets they already hold. Others use them for speculation, taking long or short positions to profit from expected price changes. Because these contracts are typically leveraged, small price movements can lead to large gains—or losses—making risk management essential.
In traditional markets, perpetual futures are traded on exchanges that act as intermediaries between buyers and sellers. These exchanges set the margin requirements, determine the funding rate intervals, and provide liquidation mechanisms to ensure fairness and solvency. This structure helps maintain liquidity while protecting participants from excessive risk.
In summary, perpetual futures are an innovative evolution of the traditional futures contract. They remove time limitations, maintain continuous price alignment with the underlying asset, and offer traders a flexible tool for speculation or hedging. Understanding how they work—especially the role of margin, leverage, and funding rates—is fundamental before using them in any market.
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