How Does a Futures Contract Differ from a Perpetual Swap?
A traditional futures contract has a fixed expiration date, meaning the contract must be settled on that date, and its price naturally converges to the spot price at expiration. A perpetual swap has no expiration date.
It uses a funding rate mechanism to periodically align its price with the spot price, eliminating the need for final settlement.
Glossar
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.
Traditional Futures
Derivation ⎊ Traditional Futures, within cryptocurrency and financial derivatives, represent standardized contracts obligating the holder to buy or sell an underlying asset at a predetermined price on a specified future date, differing from perpetual contracts through explicit expiry.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Funding Rate Mechanism
Mechanism ⎊ Funding Rate Mechanisms within cryptocurrency derivatives represent periodic payments exchanged between traders holding opposing positions in perpetual contracts, designed to anchor the perpetual contract price to the underlying spot market.
Fixed Expiration
Constraint ⎊ Fixed expiration defines a precise, predetermined date and time when a derivative contract, such as a traditional futures or European-style option, ceases to be valid and must be settled.