In What Ways Do Financial Derivatives like Futures and Perpetual Swaps Contribute to or Detract from Market Efficiency?

Derivatives contribute to market efficiency by enabling price discovery and providing tools for hedging and risk management. They allow investors to speculate on future price movements, which incorporates more information into the market.

Arbitrage between spot and derivatives markets, like futures, helps align prices and reduces discrepancies. However, the high leverage available in derivatives can also lead to increased volatility and market instability, potentially detracting from efficiency if speculative bubbles are formed or if they lead to cascading liquidations.