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Perpetuals Trading Series: What are Perpetual Futures and why trade them?

January 18, 2021
Perpetual futures are futures contracts with no maturity, as opposed to dated futures, which expire at a pre-set date and time such as every month or every quarter. Any position in a perpetual future stays open until the trader decides to close the trade by executing an offsetting trade, or until the trade gets liquidated by EQONEX.

As perpetual futures have no set expiry they are, in a way, similar to spot exposure. To ensure that perpetual prices are kept in line with the spot market, the contracts have an exchange of payment between buyers and sellers depending on where the future price is trading relative to the underlying spot price. At EQUOS, we refer to the spread between spot and perpetual futures prices as Basis. Other platforms may refer to this value as funding, which is the equivalent practice. 

Why Trade Perpetual Futures? 

Margin: the advantage of trading a perpetual future over a spot contract is that perpetuals offer the trader the ability to trade on margin: Rather than having to fund the full notional of the trade(the USDC value of the position) , the trader has the option to put down only part of the notional in margin. Therefore, trading perpetuals is more capital efficient. We will explain more about margin in the next section. 

No need to own the underlying: a perpetual future is a derivative, which means that the payoff of the contract is based on the underlying asset, such as Bitcoin BTC, but there is no need to own the underlying itself. Any profits and losses will be settled directly in USDC in your account. 

Ability to trade both directions: traders can buy (go long) or sell (go short) perpetual futures, therefore they can benefit from prices going up as well as prices going down. This cannot be easily done when trading the underlying directly. 

Risk management: traders can use perpetual futures to hedge positions. 

Download the full perpetuals guide from the EQUOS Archives homepage. 

Trade perpetuals here:

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