What Is a ‘Perpetual Swap’ and How Does It Differ from a Standard Option?
A perpetual swap is a derivative contract similar to a futures contract but without an expiration date. It tracks the underlying asset's price and uses a 'funding rate' mechanism to keep its price close to the spot price.
A standard option has a fixed expiration date and gives a right, not an obligation, making them fundamentally different instruments.
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.
Standard Option
Structure ⎊ A Standard Option, within cryptocurrency derivatives, represents a contract conferring the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date.
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.
Derivative Contract
Definition ⎊ A financial instrument whose value is derived from an underlying asset, index, or rate, encompassing cryptocurrencies, options, futures, swaps, and structured products.
Margin Requirement
Collateralization Standard ⎊ Margin Requirement is the minimum amount of collateral, expressed as a percentage of the notional value, that a trader must deposit to open or maintain a leveraged derivatives position, ensuring the exchange has a buffer against adverse price movements.