Perpetual contracts are derivative products similar to traditional futures contracts. Unlike other futures contracts that have a pre-determined expiry date or settlement, perpetual contracts have no expiry date and therefore exist in ‘perpetuity’.
Bitcoin perpetual contracts are therefore futures contracts with no expiry or settlement date meaning one can hold a position for as long as they want. They are often traded at a price that is equal or close to spot markets thanks to the funding mechanism.
Although making profits through Bitcoin perpetual contracts involves careful market analysis and quick decision making, traders have potential to make profits in both bull and bear markets with a small amount of capital, by using leverage and having the flexibility to open long/short positions. This makes trading Bitcoin perpetual contracts special and stand out from trading Bitcoin in spot market.
The technicalities of Bitcoin perpetual contracts are:
· Mark Price Mechanism: This determines how positions are marked and thus the realized and unrealized Profit and Loss (PnL) of positions. It is also used to trigger liquidation and liquidation mechanism varies from one exchange to another.
· Leverage:This determines the level of collateral required to open a position. It can be 10X, 20X or even 100X. If its 100X, it means a trader with 1 BTC can open positions for 100 BTC. Maintenance margin is the amount of collateral required to sustain a position.
· Funding: The time when exchange of funding payment between buyers and sellers occurs. It helps keeping the perpetual contracts prices close to the underlying spot index prices. On most exchanges, the exchange takes place every 8 hours.
· Insurance Fund: This makes sure winning traders get their profits when losing traders have their balances drop to below zero.
Advantages of Bitcoin perpetual contracts:
1. They have no expiry date enabling traders the leeway to hold trades for as long as they want. Traders can take part in both long and short trades.
2. The Bitcoin market works 24 hours a day, 365 days a year. This gives Bitcoin perpetual traders an opportunity to make money on weekends, holidays and any other time since traders can adjust their trades accordingly.
3. Possibility of making a huge return with a small investment. Margin or leverage trading can go up to 100X, the higher the leverage, the lower the Initial Margin required to open a position.
In conclusion, Bitcoin perpetual contracts are an important part of the cryptocurrency ecosystem. They help traders hedge, manage risk and mitigate the current Bitcoin volatility, providing a new opportunity for traders to profit in both bull and bear market. Bitcoin perpetual contracts are increasingly gaining traction in the crypto-trading circles, which can be proven by the soaring daily trading volume.
As a trader, the best way to get involved is to choose a reputable and secure platform. Supply and demand determine the prices of Bitcoin perpetual contracts. Trading on a secure and anti-manipulative platform is therefore essential.
Follow us at: