Binance offers futures trading through two flagship products: Perpetual Futures, and Quarterly Futures. Here are the key differences between the two products:
1. Expiration
A quarterly futures contract allows a trader to buy or sell the underlying asset at a predetermined price before a specified period. In other words, futures contracts have a limited lifespan and will expire based on their respective calendar cycle. For instance, our BTC 0925 is a quarterly futures contract that will expire 3 months upon the date of issuance.
On the other hand, perpetual futures contracts, as the name suggests, do not have an expiration date. Therefore, traders do not need to keep track of various delivery months, unlike quarterly futures contracts. For instance, a trader can keep a short position to perpetuity, unless he gets liquidated.
2. Funding Rate
Since perpetual futures contracts never settle in the traditional sense, exchanges need a mechanism to ensure that futures prices and index prices converge on a regular basis. This mechanism is also known as Funding Rate/Fees.
Funding fees are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding.
Unlike perpetual contracts, quarterly contracts do not carry a funding fee. This is favorable to long-term position traders and hedgers as funding fees may fluctuate over time. Especially in extreme market conditions, high funding fees can be costly to maintain a long-term position in the market.
For instance, funding fees across BTC perpetual markets may surge as Bitcoin prices rally, this indicates the imbalance of buying pressure in the market. As such, this effect results in long positions becoming more costly to hold over time.