In the cryptocurrency world, perpetual contracts have always been controversial. Some people advise people to stay away from them, believing that they are a "road of no return" that will lead to liquidation, while others see them as a shortcut to accumulate initial capital. People who play spot and contract often "complain" about each other. So what exactly is a perpetual contract?
1. What is a perpetual contract?
Perpetual contracts are similar to futures, but there is no delivery date. You can open and close positions at any time, and you can go long (bullish) or short (bearish). For example, if you predict that the price of a certain currency will rise, you can open a long order. If it rises, you will make a profit, and if it falls, you will lose money; the same is true for short orders, and if it falls, you can make money.
2. The reason why many people play perpetual contracts
1. Small capital, hoping for quick returns: Playing spot trading and waiting for a bull market takes a long time, and the returns are limited. There is also the possibility that the bull market does not come or the coins purchased do not rise. Contracts can magnify returns through leverage, and if you can judge the market accurately, you will have the opportunity to quickly increase your funds.
2. Long and short positions are more "fair": Spot trading can only make profits by going long, while contracts can be operated in both directions. There are profit opportunities both when the price goes up and down. There is no need to worry about the banker using low-priced chips to cut leeks, and you can "fight" against the banker.
3. Several key points in contract trading
1. Leverage: It is a profit and risk amplifier. The exchange provides 1-125 times leverage, which allows small funds to leverage large positions. However, the higher the leverage, the greater the risk. For example, with 100 times leverage, a 1% price fluctuation may double or cause a margin call. Many people increase leverage to recover their losses after losing money with low leverage, which results in accelerated margin calls.
2. Funding rate: In order to anchor the perpetual contract price to the spot price, the exchange adjusts the funding rate. When the rate is positive, the short side pays in the long direction, and when the rate is negative, the long side pays in the short direction. The payment cycle is once every 8 hours, and the amount is calculated based on the transaction amount (principal × leverage) × funding rate.
3. Transaction Fees: There are two types: "Taker" (high transaction fee) and "Placemaker" (low transaction fee), and they are charged in both directions. For example, Binance's taker fee is 0.05%, and the maker fee is 0.02%.
4. Margin Call: When the price reaches the forced liquidation price, the exchange forces liquidation, which is a margin call. Not only will the funds be reduced to zero, but you will also have to pay high handling fees. When opening a position, you must set a stop loss price to prevent a margin call due to a "spiking" market.
4. Who is not suitable for playing contracts?
People who have poor self-control, are very competitive, are under great financial pressure (using funds for daily necessities or borrowed funds), and are severely emotional, playing contracts is more like "giving money" to the market.
V. Conclusion
Perpetual contracts are high-yield, high-risk trading tools. Leverage and two-way operations give small-capital players a chance to make a profit, but the risk of liquidation is high. Stay calm, self-disciplined, and reasonably control positions and leverage. It may be an opportunity; otherwise, it may be a deep pit that swallows up funds. Finally, it is reminded that investment is risky and you need to be cautious when entering the market. Market lessons are often painful.
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