In-depth Analysis of Perpetual Contracts: A Must-Read for Beginners!
In the cryptocurrency world, perpetual contracts are a highly controversial topic. Some firmly oppose trading contracts, believing they are extremely risky, while others see them as a shortcut to quickly accumulate initial capital, even labeling those who only trade spot as conservative and themselves as brave explorers. So what exactly are perpetual contracts? Why do they spark such great divergence?
As the name suggests, a perpetual contract is a type of contract that has no settlement date, similar to futures but more flexible. It allows for both long and short positions, meaning one can predict the price trend of a certain cryptocurrency and trade based on that prediction. If the prediction is correct, one can make a profit; otherwise, one may face a loss.
Why do many people love trading contracts? There are mainly two reasons: spot trading requires a long wait, possibly even one or two years before a bull market arrives. Even when a bull market does come, the cryptocurrencies held may not increase significantly, resulting in limited returns.
In contrast, contracts offer higher profit potential, attracting those seeking quick returns. Additionally, contracts allow for short selling, which makes traders feel fairer. This is because spot trading can only go long, and market makers may manipulate low-priced chips to profit at the expense of retail investors. In contrast, contracts provide a two-way trading opportunity, giving investors more options.
However, contracts are not without risks, with leverage being one of the main factors. Leverage can amplify profits but also magnify losses. Once market fluctuations exceed expectations, there may be a risk of liquidation. Additionally, contracts involve funding rates and transaction fees. Funding rates are used to adjust the price differences between contracts and spot prices, while transaction fees are the trading costs charged by exchanges. These costs increase trading expenses and reduce profit margins.
Therefore, for individuals with poor self-control, strong competitiveness, heavy gambling tendencies, or significant financial pressure, trading perpetual contracts may lead to painful lessons. They may overtrade and increase leverage due to an inability to control their trading desires, ultimately resulting in liquidation or substantial losses.
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