Perpetual futures contracts

Perpetual Futures Contracts: A Beginner's Guide

Welcome to the world of cryptocurrency trading! This guide will walk you through perpetual futures contracts, a more advanced way to trade digital assets like Bitcoin and Ethereum. Don’t worry if this sounds complicated – we’ll break it down step-by-step.

What are Futures Contracts?

Imagine you’re a farmer and you agree to sell your wheat to a baker in three months at a set price. This agreement is a *futures contract*. Both of you lock in a price today for a transaction that happens in the future.

In the crypto world, a futures contract lets you agree to buy or sell a cryptocurrency at a specific price on a specific date. However, *perpetual* futures are a bit different. They don’t have an expiration date! They stay open indefinitely, allowing you to hold your position for as long as you want (as long as you meet margin requirements, explained later).

Think of it like this: regular futures are like a lease, while perpetual futures are more like owning the underlying asset with ongoing fees.

Key Terminology

Let's define some important terms:

• **Underlying Asset:** The cryptocurrency you are trading the futures contract *on*. For example, Bitcoin (BTC) or Ethereum (ETH).
• **Contract Size:** The amount of the underlying asset represented by one contract. For example, one Bitcoin perpetual futures contract might represent 1 BTC.
• **Margin:** The amount of money you need to *hold* in your account to open and maintain a position. It's like a security deposit. You don’t need the full value of the contract; margin lets you control a larger position with less capital.
• **Leverage:** This is where things get interesting (and risky!). Leverage allows you to amplify your potential profits *and* losses. For example, 10x leverage means you can control 10 times the amount of the underlying asset with your margin. So, with $100 of margin and 10x leverage, you can control $1000 worth of Bitcoin. See Leverage Trading for more details.
• **Long Position:** Betting that the price of the underlying asset will *increase*. You buy the contract, hoping to sell it later at a higher price.
• **Short Position:** Betting that the price of the underlying asset will *decrease*. You sell the contract, hoping to buy it back later at a lower price.
• **Funding Rate:** Because perpetual contracts don't have an expiration date, exchanges use a *funding rate* to keep the contract price close to the spot price (the current market price). The funding rate is a periodic payment (usually every 8 hours) between long and short position holders. If the perpetual contract price is *higher* than the spot price, longs pay shorts. If it’s *lower*, shorts pay longs.
• **Liquidation Price:** The price at which your position will be automatically closed by the exchange to prevent losses exceeding your margin. This is why managing risk is critical.
• **Mark Price:** The price used to calculate unrealized profit and loss, and also to determine liquidation. It’s calculated based on the spot price and the funding rate.

How Perpetual Futures Work: An Example

Let’s say Bitcoin is trading at $30,000. You believe the price will go up, and you want to use 10x leverage.

1. You deposit $100 as margin into your account on an exchange like Register now. 2. With 10x leverage, you can open a long position worth $1000 of Bitcoin. 3. If Bitcoin’s price increases to $31,000, your profit is $100 (10% of $1000). *However*, you also need to factor in the funding rate. 4. If Bitcoin’s price falls to $29,000, your loss is $100. If it falls further and reaches your liquidation price (calculated based on your leverage and margin), your position will be automatically closed, and you’ll lose your $100 margin.

Perpetual vs. Regular Futures: A Comparison

Feature	Perpetual Futures	Regular Futures
Expiration Date	No expiration	Specific date
Funding Rate	Yes, to anchor price to spot	No
Settlement	Continuous	At expiration
Complexity	Slightly more complex	Relatively simpler

Getting Started: Practical Steps

1. **Choose an Exchange:** Popular exchanges for perpetual futures include Register now, Start trading, Join BingX, Open account and BitMEX. Research and compare fees, security, and available assets. 2. **Create and Verify Your Account:** You’ll need to provide personal information and complete verification (KYC - Know Your Customer). 3. **Deposit Funds:** Deposit cryptocurrency into your futures wallet. 4. **Understand the Interface:** Familiarize yourself with the trading interface, order types (explained below), and margin settings. 5. **Start Small:** Begin with a small amount of capital and low leverage. Don't risk more than you can afford to lose. 6. **Practice with a Demo Account:** Many exchanges offer demo accounts where you can trade with virtual funds. This is a great way to learn without risking real money.

Order Types

• **Market Order:** Buys or sells immediately at the best available price.
• **Limit Order:** Buys or sells only at a specific price or better.
• **Stop-Loss Order:** Closes your position when the price reaches a specified level, limiting potential losses. See Stop Loss Orders for more information.
• **Take-Profit Order:** Closes your position when the price reaches a specified level, securing profits.

Risk Management is Crucial

Perpetual futures trading is highly risky due to leverage. Here are some vital risk management tips:

• **Use Stop-Loss Orders:** Always set stop-loss orders to limit potential losses.
• **Manage Leverage:** Start with low leverage (2x or 3x) and gradually increase it as you gain experience.
• **Don't Overtrade:** Avoid making impulsive trades based on emotions.
• **Understand Funding Rates:** Factor funding rates into your trading strategy.
• **Monitor Your Position:** Regularly check your margin and liquidation price. Read up on Margin Calls to avoid unwanted liquidations.

Further Learning

• Cryptocurrency Exchanges
• Technical Analysis
• Fundamental Analysis
• Trading Volume Analysis
• Candlestick Patterns
• Moving Averages
• Bollinger Bands
• Fibonacci Retracements
• Risk Management in Crypto
• Trading Psychology
• Order Book Analysis
• Market Depth
• Short Squeezes
• Long Squeezes

Disclaimer

Cryptocurrency trading involves substantial risk of loss and is not suitable for everyone. This guide is for informational purposes only and should not be considered financial advice. Always do your own research and consult with a qualified financial advisor before making any investment decisions.

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.* ⚠️