Perpetual Contracts in the Crypto World: Opportunities and Pitfalls
In the crypto world, perpetual contracts are highly controversial. As a firsthand experiencer of contract trading, I am well aware of their complexity.
In the crypto space, perpetual contracts are the focal point. Some see it as a shortcut to wealth, while others view it as a path to bankruptcy. Spot and contract traders often blame each other.
Perpetual contracts are similar to futures but have no delivery date, allowing for flexible trading. You can go long or short; if you accurately predict the market, you can profit. For example, if you predict a certain coin's price will rise, you open a long position, and if it rises, you profit, and vice versa.
However, they come with significant risks. Leverage is highly attractive but can also be deadly. Exchanges offer leverage from 1 to 125 times, allowing small amounts to control large positions, but with 100 times leverage, a 1% price fluctuation can lead to massive gains or liquidation of assets. Many people increase their leverage after losses at low leverage, resulting in accelerated liquidation.
Funding rates and transaction fees should not be underestimated. Funding rates are used to maintain the balance between contract and spot prices, adjusting every 8 hours, with both long and short positions paying accordingly. Transaction fees are charged in both directions; for example, Binance charges a taker fee of 0.05% and a maker fee of 0.02%, increasing trading costs.
The risk of liquidation is particularly frightening; if the price hits the liquidation line, the exchange will forcibly close positions, resulting in capital going to zero while incurring high fees. Therefore, setting a stop-loss price is crucial.
Not everyone is suited for perpetual contracts. People with poor self-control, strong competitiveness, high financial pressure, and severe emotional issues often find themselves in difficulties, as for them, this is not an opportunity but a dangerous trap.