What is Traditional Futures Contract?
Traditional Futures Contract is a legal agreement to purchase or sell a particular commodity asset or security at a specific time in the future. It is a standardized contract formulated by the futures exchange.For example, the Chicago Board of Trade stipulates that the trading unit of a wheat futures contract is 5,000 bushels. If a trader buys 1 contract, it means that he will actually buy 5,000 bushels of wheat on the expiration date.
What is Perpetual Contract?
Perpetual Contract is a crypto derivative similar to Traditional Futures Contract. You can see it as a margin spot market, and the price for a certain contract anchors its price in the spot market through the funding rate. The key feature of Perpetual Contract is that it has no expiration or settlement, and you can hold your positions as long as you like (if not liquidated).
Differences Between Perpetual Contract and Traditional Futures Contract
The object of Traditional Futures Contracts is mainly tangible commodities or financial assets (e.g. soybeans, fossil oil, stocks and bonds).
Differently, the object of Perpetual Contract is cryptocurrencies such as BTC/USDT and ETH/USDT, which are intangible.
2. Expiration/Settlement Period
For Traditional Futures Contracts, the trading hour is decided by the futures exchange, which is usually 9 hours daily, settling monthly, quarterly or yearly.
As for Perpetual Contract, there is no expiration or settlement, so you can trade 7*24.
In Traditional Futures Contract markets, when traders are unable to close their positions in time during drastic market fluctuations and clawbacks occur; that is, the funding rate cannot cover the loss, all profited traders will have to share the clawback loss.
As in Perpetual Contract markets, an "Automatic Reduction" mechanism is adapted to lower market risk by deducting the counter-party's position. Also, the clawback loss will be covered by funding rates instead of traders.