If you're new to the world of cryptocurrency trading, you may have come across the term "Perpetual Futures" and wondered what it means. Don't worry; we're here to break it down for you in simple terms.

What Are Perpetual Futures?

Perpetual Futures, often referred to simply as "Perps" are a type of financial derivative instrument widely used in the world of cryptocurrency trading. They're designed to allow traders to speculate on the future price movements of various assets, both up and down, without actually owning those assets.

Here's a closer look at what makes perpetual futures unique:

No Expiry Date: Unlike traditional futures contracts that have a set expiration date, perpetual futures have no expiry date. This means you can hold a perpetual futures position for as long as you want, provided you meet the margin requirements.

Continuous Trading: Perpetual futures contracts offer continuous trading 24/7, allowing traders to enter or exit positions at any time, day or night. This flexibility is particularly attractive to traders in the cryptocurrency market, which operates non-stop.

Leverage: Perpetuals often provide traders with the option to use leverage, allowing them to control a more substantial position size with a relatively small amount of capital. While this can amplify profits, it also increases the potential for losses, so it's essential to use leverage cautiously.

Long and Short Positions: Perpetual futures enable traders to take both long (betting on the price increase) and short (betting on the price decrease) positions on cryptocurrencies without owning the actual assets.

Funding Rates: To maintain price alignment between the Perp and the underlying asset, perpetual futures use funding rates, which are small fees exchanged between the holders of long and short positions. When the contract's price deviates from the market price, funding rates help bring it back in line.

How Do Perpetual Futures Work?

Let's say you believe the price of Bitcoin (BTC) will increase. Instead of buying actual BTC, you can enter a long (buy) position on a Bitcoin perpetual futures contract. If the price of BTC rises as you expected, you'll make a profit. Conversely, if the price goes down, you'll incur a loss.

Key Points to Remember:

• Perpetual futures contracts are a way to speculate on cryptocurrency price movements without owning the actual assets.
• They don't have an expiration date and offer continuous 24/7 trading.
• Perpetuals use a funding mechanism to keep their prices aligned with the spot market.
• Leverage can be used to amplify potential profits but also increases risk.