How Does a Perpetual Swap Differ from a Traditional Futures Contract?
The main difference is the expiration date. Traditional futures contracts have a fixed expiration date, after which they are settled.
Perpetual swaps, as the name suggests, have no expiration date. They mimic the characteristics of a spot market by using the funding rate mechanism to periodically settle the difference between the contract price and the underlying asset price.
This allows traders to hold positions indefinitely.
Glossar
Traditional Futures Contracts
Mechanism ⎊ Traditional futures contracts, within cryptocurrency and broader financial derivatives, represent standardized agreements obligating parties to transact an asset at a predetermined price on a specified future date; these instruments facilitate price discovery and risk transfer, differing from spot markets through their deferred settlement.
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.
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.
Perpetual Swaps
Derivatives ⎊ Perpetual swaps represent a class of financial derivatives, specifically within the cryptocurrency ecosystem, that replicate the payoff of a futures contract without a fixed expiration date.
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.