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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What are the Differences Among Spot Trading, Margin Trading and Futures Trading