Unlike buying and holding, trading perps lets you participate in the market right away without having to take custody of the underlying asset and with only a fraction of the capital needed to purchase an asset outright.
By now, you've familiarized yourself with buying and selling popular cryptocurrencies like bitcoin (BTC) and ether (ETH). Perhaps you've tried your hand at investing in some other promising tokens like XRP, CHZ, or DOT. Whether you've been in crypto for a few months or a few years, no doubt you've experienced the highs of its epic price rallies and the lows when the markets take a downward turn.
Buying and holding (known as "HODLing" in the crypto space) can certainly be rewarding and offer many financial gains. But, HODLing is a long-term strategy that requires patience and the conviction that the asset you're holding will rise substantially in price over time. This means that you'll have to stomach the short-term volatility and wait until you reach your target sell price. But what do you do in the meantime?
If you're looking to access faster returns and gain exposure to the market without taking on excessive risk, have you thought about trading perps? Trading perps using leverage allows you to enter with a small amount of capital and can amplify your returns as well.
In this article, we'll take a look at one of the crypto industry's favorite forms of trading tokens (perps) and how they differ from dated futures. You'll also see how you can benefit from trading perps and how easy it is to get started using your EQONEX account.
The term "perps" is short for perpetual futures. As the name suggests, a perpetual futures contract keeps going and has no expiry date or maturity period, unlike dated futures that expire at a set time each month or quarter. This means that traders trading perps can keep their positions open for as long as they like until they either decide to close the trade or the trade gets liquidated by the exchange.
Another way that perps differ from dated futures is that perps mirror the spot price of the underlying asset. This makes trading perps (in some ways) similar to spot exposure and much more accessible for traders to manage than dated futures. To ensure that perpetual prices stay in line with spot market prices, with perps, the contracts involve a continuous exchange of payment between buyers and sellers.
At EQONEX, we refer to the spread between spot and perpetual futures prices as "Basis." However, another common term for this value is "funding," and the payment is known as the funding rate. The funding rate depends on where the future price is trading relative to the underlying spot price.
So, for example, if longs are in greater demand than shorts, the impact price will be, on average, higher than the index price. This means that the funding rate will be positive, and longs will make periodic funding payments to shorts. When the reverse is true, and the impact price is lower than the index price, the shorts periodically pay the longs. This funding mechanism ensures that the price of perps stays in line with the price of the underlying asset.
Perps may sound a little complicated to start off with, but they have quickly become one of the most popular ways of trading tokens in the industry. Because they have no expiry period, you don't have to worry about constantly reestablishing your position or being forced to sell at a time when the market conditions are less than desirable for you. Moreover, EQONEX takes care of funding payments in the background, so you never have to worry about the mechanics of maintaining the perp price close to the spot.
Perps have several other advantages over simply buying the underlying asset. The most obvious is that they offer traders a way of taking out large positions with little money, using leverage, and earning big profits even with small price movements. That's especially handy when the market is trading sideways; you can still make a profit rather than waiting for months (or even years) like HODLers. And here are a few more reasons you may want to trade perps over spot:
At over $45,000 per coin, purchasing one BTC is out of reach of many traders. But trading perps allows you to trade a whole BTC with little funds by using leverage. So, say you had USDC 1,000 in your trading account, you could use 45 x leverage and open a 1 BTC position. Using leverage (otherwise known as trading on margin) allows you to enter the market quickly and easily and maximize the gains (or losses) on your trade.
Because you don't have to fund the full notional of the trade (i.e., the full $45,000), trading perps becomes much more capital efficient than purchasing the underlying directly. If you don't want to wait until you have the full funds to bet on the direction of the market, EQONEX provides leverage of up to 125x. Here's how it works:
Let's say that one bitcoin (BTC) is $41,375, and you strongly believe that its price will triple in the coming months. You can bet on its rise relative to USD by buying a 1 BTC/USD perpetual futures contract. You can do this with less than $350 if you use maximum leverage. If you are right and the price reaches your predicted level, you can exit your position and secure your profits (minus the funding rate fees and margin).
Trading perps means that you open a contract that is based on the underlying asset (BTC). Since it is a contract, you never have to take hold of the underlying asset and can keep your account highly liquid with all profits and losses paid directly into your USDC account.
Trading perps, just like trading futures, gives you the ability to bet on the market going either way. This means that, unlike holding an asset for the long term and losing money when the market goes down, you can make money whether the price goes up and down by taking out a short or long position. You can buy (go long) or sell (go short) perpetual futures and benefit from movements in either direction as long as you make the right call.
Trading perps gives you the ability to hedge positions, thereby enhancing your risk management. So, rather than simply holding an asset and being exposed to its market dips, trading perps allows you to take out the opposite position and hedge your holdings. If the price goes down on your holdings, you can still profit from your perp position.
In this simple video, you'll see how to easily trade perps on EQONEX, trading 1 BCT with just $2,000 using leverage. You can take out a position in just a couple of clicks and see all your open positions and realized and unrealized PnL right from within your account. It couldn't be easier to get exposure to today's markets with minimal investment and effort.
Trading perps make betting on the crypto markets more accessible to all types of traders and less risky than using other instruments such as dated futures or options. The lack of expiry date and price that mirrors spot make perps the next logical step in your crypto trading journey.
You no longer have to wait for market dips to invest in BTC, as you can gain exposure to a whole BTC with minimal funds using as much as 125x leverage on EQONEX. Not having to take custody of the underlying asset also makes your life simpler. You can easily enter and exit positions and take advantage of market swings and fluctuations.
With so many compelling qualities, it's no wonder perps have become so popular with traders in the crypto space, combining the best from spot and futures markets. Perps allow traders to focus on price action without worrying about the security risks of holding and storing tokens or constantly keeping on top of their positions on expiring futures contracts.
As with any investment, keep in mind that trading perps can be risky, especially when using leverage, so never trade with more capital than you can afford to lose. Be sure to follow a basic risk management strategy.
Cryptocurrencies are highly volatile, meaning that their prices fluctuate continuously, and often dramatically, all the time. For some traders, this is an opportunity not to be missed.
Crypto Jack Explains How to Cash In With Dated Futures. Traders can use dated futures to lock in profits, hedge exposure to an asset, create low-risk yield trades, or aggressively speculate on an asset's price using leverage.
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