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Glossary

Perpetual Contracts

November 21, 2023 - Around 2 mins mins to read

Understanding Perpetual Contracts

Perpetual contracts are a type of financial derivative that enables individuals to speculate on the price movement of an asset. These contracts are similar to futures contracts but require the use of tokens as collateral to open a leveraged position. If a person predicts that the asset’s price will rise and it does, they will receive more tokens when they close their position. Conversely, if the price moves in the opposite direction, they will receive fewer tokens upon closing their position.

The key difference between futures contracts and perpetual contracts lies in their expiration. While futures contracts have a predetermined settlement date, perpetual contracts have no expiration or settlement date. This means that individuals can hold a perpetual contract for an indefinite period.

In the case of traditional futures contracts, the contract price gradually aligns with the spot market price of the underlying asset as the expiration date approaches. However, perpetual contracts do not have an expiration date. Instead, they include a funding payment to help maintain the price in line with the spot market. If the contract price is higher than the spot price, traders with long positions will pay traders with short positions, and vice versa. These payments occur at regular intervals, typically every 1 or 8 hours.

Due to their user-friendly nature and flexibility, perpetual contracts are the most widely traded instrument in the cryptocurrency space, with trillions of dollars in trading volume each day.

Author: Yenwen Feng – Co-Founder at Perpetual Protocol

Yenwen Feng is a cryptocurrency and technology professional with extensive experience as a CEO and co-founder of various startups. Since 2004, Yenwen has founded Decore (Stripe Atlas for Crypto Companies), Cinch Network (Decentralized Derivatives), Cubie Messenger (Mobile Messenger, 500 Startups B5, 10M downloads), Gamelet, and Willmobile (Top mobile financial service app in Taiwan, acquired by Systex). Since 2019, Yenwen has served as CEO and co-founder of Perpetual Protocol, a decentralized perpetual contract protocol.

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Glossary

Perpetual Contracts

Understanding Perpetual Contracts

Perpetual contracts are a type of financial derivative that enables individuals to speculate on the price movement of an asset. These contracts are similar to futures contracts but require the use of tokens as collateral to open a leveraged position. If a person predicts that the asset’s price will rise and it does, they will receive more tokens when they close their position. Conversely, if the price moves in the opposite direction, they will receive fewer tokens upon closing their position.

The key difference between futures contracts and perpetual contracts lies in their expiration. While futures contracts have a predetermined settlement date, perpetual contracts have no expiration or settlement date. This means that individuals can hold a perpetual contract for an indefinite period.

In the case of traditional futures contracts, the contract price gradually aligns with the spot market price of the underlying asset as the expiration date approaches. However, perpetual contracts do not have an expiration date. Instead, they include a funding payment to help maintain the price in line with the spot market. If the contract price is higher than the spot price, traders with long positions will pay traders with short positions, and vice versa. These payments occur at regular intervals, typically every 1 or 8 hours.

Due to their user-friendly nature and flexibility, perpetual contracts are the most widely traded instrument in the cryptocurrency space, with trillions of dollars in trading volume each day.

Author: Yenwen Feng – Co-Founder at Perpetual Protocol

Yenwen Feng is a cryptocurrency and technology professional with extensive experience as a CEO and co-founder of various startups. Since 2004, Yenwen has founded Decore (Stripe Atlas for Crypto Companies), Cinch Network (Decentralized Derivatives), Cubie Messenger (Mobile Messenger, 500 Startups B5, 10M downloads), Gamelet, and Willmobile (Top mobile financial service app in Taiwan, acquired by Systex). Since 2019, Yenwen has served as CEO and co-founder of Perpetual Protocol, a decentralized perpetual contract protocol.

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