How do standard and perpetual futures contracts work in the world of digital currencies?

1 answers

• deflkyMay 30, 2021 · 4 years ago
  In the world of digital currencies, both standard and perpetual futures contracts play a significant role in facilitating trading activities. Standard futures contracts have a fixed expiration date, which means that they have a specific end date when the contract is settled. This settlement typically involves the physical delivery of the underlying asset. On the other hand, perpetual futures contracts do not have an expiration date and are designed to mimic the spot market. They are settled based on a funding mechanism, which ensures that the contract price closely tracks the spot price of the digital currency. This funding mechanism involves periodic exchanges of funding rates between long and short positions. The funding rate is used to maintain the contract's price stability and prevent it from deviating too far from the spot price. Perpetual contracts are popular among traders who want to maintain their positions for an extended period without worrying about contract expiration. They offer more flexibility and allow traders to manage their exposure to the underlying asset more effectively. Overall, both types of contracts serve different purposes and cater to the diverse needs of traders in the digital currency market.
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