Differences Between Perpetual Contract and Traditional Futures Contract

What is a Traditional Futures Contract?

A futures contract is a standardized agreement facilitated through a futures exchange to buy or sell particular commodities or financial instruments at a predetermined price on a specific date in the future.

For example, the Chicago Board of Trade (CBOT) specifies that the trading unit per wheat futures contract is 5,000 bushels of wheat. A trader purchasing one wheat futures contract agrees to buy 5,000 bushels of wheat upon the contract's expiration.

 

What is a Perpetual Contract?

A perpetual contract is a cryptocurrency derivative designed specifically for crypto trading. Unlike a traditional futures contract,  a perpetual contract has no expiration or settlement date, allowing users to hold positions indefinitely. The price is anchored to the spot market price of the underlying asset through a funding rate mechanism.

 

Key Differences Between Perpetual Contracts and Traditional Futures Contracts

Futures type

Traditional Futures Contracts Perpetual Contracts
Underlying asset

Commodities or financial instruments, such as soybeans, oil, stocks, or bonds

Crypto assets, such as BTC/USDT or ETH/USDT

Trading hours Facilitated through the futures exchange, trading for 9 hours per day 24/7 trading hours, allowing transactions at any time
Settlement/Expiry

Fixed expiration dates; contracts must be settled by delivery of the underlying assets or rolled over on a monthly, quarterly, or annual basis

No expiration or settlement date

Positions can be held indefinitely

Settlement/Expiry

No special mechanism

Settlement price = Spot market price

The funding rate mechanism adjusts payments between longs and shorts to keep prices close to the spot price
Leverage Lower, typically 1–10X Higher, ranging from 1–100X
Risk management

Uses a clawback mechanism:

In the event of extreme price swings causing some users to fail to liquidate positions (leading to negative balances), the platform redistributes these losses across all profitable users

Uses an auto-deleveraging mechanism:

Reduces counterparty’s positions to limit market risk and cover losses through an insurance fund, preventing users from sharing losses

Scenario Corporate hedging, time-based trading strategies Short-term trading, long-term holding, and arbitrage strategies

 

 

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