Perpetual contracts

Perpetual Contracts: A Beginner's Guide

Welcome to the world of cryptocurrency trading! You've likely heard about buying and holding Bitcoin or Ethereum, but there's another way to participate in the market: trading *perpetual contracts*. This guide will break down what they are, how they work, and how you can get started. It's designed for complete beginners, so we'll avoid complex jargon as much as possible.

What are Perpetual Contracts?

Imagine you want to speculate on whether the price of Bitcoin will go up or down. Traditionally, you’d buy Bitcoin directly. A perpetual contract lets you do this *without* actually owning the Bitcoin itself. It's a derivative product, meaning its value is *derived* from the underlying asset (in this case, Bitcoin). Think of it like making a bet on the price of Bitcoin, but with more sophisticated tools.

Unlike traditional futures contracts, perpetual contracts don’t have an expiry date. This is where the "perpetual" part comes from! They continue existing indefinitely, as long as you keep your position open. This makes them popular for traders who want to hold a position for an extended period.

Key Terms Explained

Let's define some important terms:

**Underlying Asset:** The cryptocurrency the contract is based on (e.g., Bitcoin, Ethereum)
**Contract Value:** The amount of the underlying asset the contract represents. For example, one Bitcoin perpetual contract might represent 1 Bitcoin.
**Leverage:** This is where things get interesting (and potentially risky!). Leverage lets you control a larger position with a smaller amount of capital. For instance, 10x leverage means you can control a position worth 10 times your actual investment. While this can amplify profits, it also amplifies *losses*. See Risk Management for more.
**Long Position:** Betting that the price of the underlying asset will *increase*. If you go long on Bitcoin and the price goes up, you profit!
**Short Position:** Betting that the price of the underlying asset will *decrease*. If you go short on Bitcoin and the price goes down, you profit!
**Funding Rate:** Because perpetual contracts don't expire, a mechanism called the *funding rate* is used to keep the contract price (the price on the exchange) close to the spot price (the actual market price of the underlying asset). The funding rate is a periodic payment either paid *by* longs to shorts, or *by* shorts to longs, depending on which side has more open positions.
**Margin:** The amount of capital you need to open and maintain a position. Your margin is locked as collateral.
**Liquidation Price:** The price level at which your position will be automatically closed to prevent losses exceeding your margin. This is a crucial concept to understand – see Liquidation.

How Do Perpetual Contracts Work?

Let's illustrate with an example. Suppose Bitcoin is trading at $30,000.

You believe Bitcoin's price will rise. You open a *long* position with 10x leverage, using $1,000 of your own capital as margin. This means you're controlling a position worth $10,000.

If Bitcoin's price rises to $31,000, your position increases in value by $1,000 (10% of $10,000).
If Bitcoin's price falls to $29,000, your position decreases in value by $1,000.
If the price falls further and hits your *liquidation price*, your position is automatically closed, and you lose your $1,000 margin.

Remember, leverage is a double-edged sword. It magnifies both gains *and* losses.

Perpetual vs. Futures Contracts

Here's a quick comparison:

Feature	Perpetual Contracts	Futures Contracts
Expiry Date	No expiry	Fixed expiry date
Funding Rate	Yes	No
Settlement	No physical delivery	Usually physical delivery or cash settlement
Market	Typically more liquid	Can be less liquid

Getting Started: A Practical Guide

1. **Choose an Exchange:** Several exchanges offer perpetual contracts. Popular options include Register now (Binance Futures), Start trading (Bybit), Join BingX, Open account (Bybit), and BitMEX. Research each exchange and choose one that suits your needs. 2. **Create an Account & Complete KYC:** You’ll need to create an account and verify your identity (Know Your Customer or KYC). 3. **Deposit Funds:** Deposit cryptocurrency (usually USDT or BTC) into your exchange account. 4. **Navigate to the Futures/Derivatives Section:** Most exchanges have a dedicated section for futures and perpetual contracts. 5. **Select the Contract:** Choose the cryptocurrency you want to trade (e.g., BTCUSD, ETHUSD). 6. **Choose Your Position Size & Leverage:** Carefully consider your risk tolerance and choose an appropriate position size and leverage. *Start with low leverage* until you understand the mechanics. 7. **Place Your Order:** Decide whether to go long or short and place your order. 8. **Monitor Your Position:** Keep a close eye on your position, margin, and liquidation price.

Risk Management is Crucial

Perpetual contracts are inherently risky, especially with leverage. Here are some essential risk management tips:

**Start Small:** Begin with a small amount of capital you can afford to lose.
**Use Stop-Loss Orders:** A stop-loss order automatically closes your position when the price reaches a certain level, limiting your potential losses. See Stop-Loss Orders.
**Understand Leverage:** Don’t use leverage you don’t understand.
**Monitor Funding Rates:** Factor funding rates into your trading strategy.
**Diversify:** Don't put all your eggs in one basket.
**Learn Technical Analysis:** Understanding Technical Analysis can help you make more informed trading decisions.

Resources for Further Learning

Recommended Crypto Exchanges

Exchange	Features	Sign Up
Binance	Largest exchange, 500+ coins	Sign Up - Register Now - CashBack 10% SPOT and Futures
BingX Futures	Copy trading	Join BingX - A lot of bonuses for registration on this exchange

Start Trading Now

Register on Binance (Recommended for beginners)
Try Bybit (For futures trading)

Learn More

Join our Telegram community: @Crypto_futurestrading

⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️

Perpetual contracts

Contents