In the world of decentralized finance (DeFi), a new form of trading instrument called perpetual contracts (or “Perps” for short) has made waves. These contracts take the basic idea of traditional futures and give it a crypto twist – they have no expiration date! This lets traders speculate on an asset’s future price indefinitely. Pretty cool innovation!
So how do Perps actually work their magic? There’s a mechanism called the “funding rate” that incentivizes the contract price to stay in line with the actual spot price of the asset. Basically, traders have to make small payments to each other, depending on whether their positions are helping or hurting the alignment between contract and spot. keeps things running smoothly.
Another big perk is leverage. Perps allow traders to control a larger position with a smaller amount of capital. More leverage means more potential profit, but also more risk of liquidation if things go downhill. So traders need to manage risk wisely.
To trade Perps, you need to maintain a minimum margin balance as collateral. If the market turns against you and wipes out your margin, your position will get liquidated. No bueno! So keep a close eye on those liquidation levels.
Some popular platforms for trading Perps include QuickSwap’s “QuickPerps” on Polygon, and dYdX, which offers slick trading tools. But wherever you trade them, Perps open up a bold new world of perpetual possibilities! Just be smart with the leverage.
What Are Perpetual Contracts?
- Perpetual contracts (or “Perps”) are a type of futures contract without an expiration date. This allows speculation on an asset’s price indefinitely.
- Also referred to as a “perp swap” or “perpetual swap.”
How Do Perpetual Contracts Work?
- Funding rate – Traders pay/receive periodic funding to keep contract price aligned with spot price.
- Leverage – Perps allow traders to use leverage to increase profits/losses from price moves. But more risk too.
- Margin requirements – Traders must maintain a minimum margin balance to keep positions open.
- Liquidation – If margin falls too low, position is liquidated. So liquidation levels must be monitored.
Popular Perpetual Contract Platforms
- QuickSwap’s QuickPerps – Trade major assets on Polygon zkEVM with leverage.
- dYdX – Prominent decentralized exchange offering perp trading. User-friendly interface.
- Perpetual Protocol – Among the first to offer perp trading in DeFi.
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