How does a perpetual futures contract differ from a traditional futures contract in the context of digital currencies?

1 answers

• Dec 25, 2021 · 3 years ago
  In the context of digital currencies, a perpetual futures contract differs from a traditional futures contract in a few key ways. Firstly, perpetual futures contracts do not have an expiration date, while traditional futures contracts have a fixed expiration date. This means that traders can hold perpetual futures contracts for as long as they want, without worrying about contract expiration. Secondly, perpetual futures contracts often use a funding mechanism to ensure that the contract price closely tracks the spot price of the underlying digital currency. This funding mechanism helps maintain market stability by preventing the contract price from deviating too much from the spot price. Lastly, perpetual futures contracts typically have a funding rate that is periodically exchanged between long and short positions. This funding rate helps align the contract price with the spot price and provides an incentive for traders to keep the contract price in line with the underlying asset. Overall, perpetual futures contracts offer more flexibility and stability compared to traditional futures contracts in the digital currency context.
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