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Perpetual contracts Meaning

A perpetual contract is a specialized type of futures contract that does not have an expiration date. In traditional finance, a futures contract is a promise to buy or sell an asset on a specific date in the future. A perpetual contract allows a trader to hold their position for as long as they want, provided they have enough margin in their account to keep the trade open.The technical challenge of a perpetual instrument is keeping its price tethered to the actual spot price of the asset.

Since there is no settlement date to force the prices to meet, the market uses a mechanism called the funding rate. Every few hours, longs pay shorts if the contract price is higher than the spot price, or shorts pay longs if the contract price is lower.

This periodic payment creates a financial incentive for traders to push the price back toward the true market value.Perpetual contracts are the most popular trading instrument in the crypto market because they allow for high leverage. A trader might use $1,000 to open a $10,000 position.

While this can magnify profits, it also greatly increases the risk of liquidation. If the price moves against the trader by just 10%, their entire $1,000 is wiped out to cover the losses, and the exchange automatically closes the position.

This leads to the dramatic liquidation cascades often seen during market crashes.For the crypto ecosystem, perpetuals provide deep liquidity. Because traders don't have to roll over their positions into new monthly contracts, the volume stays concentrated in one perpetual market.

This makes it easier for institutions to enter and exit large positions without moving the price too much. However, the high complexity and funding costs mean they are generally considered professional tools and should be used with caution by retail investors.

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Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

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