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Gate.io AMA - Why to use Perpetual Contract
09 October 10:54
Q: We talked about a lot of things about Perpetual Contract in the previous AMA. Some users are still asking "Why to use Perpetual Contract".
A: Then let's get to some conclusions today.
Basic definition
Perpetual contracts are an easy way for traders to hold leveraged positions without an expiration date in a given market.
Additionally, investors can take advantage of perpetual funding rates to earn interest while minimizing risk from the underlying asset.
Meaning of Perpetual Contract.
1.It is kind of future trade, compared to traditional future trade, we can close trade at anytime in Perpetual Contract.
Traditional future trade needs a deadline time and when it reaches that time, the trade will be triggered.
Traditional future trade is not flexible enough as the market fluctuates all the time.
2.Compared to Spot Trading, we can just set up the entry price, Take Profit(TP) and Stop Loss(S/L), sitting back and wait for the result. Spot Trading, we need to operate BUY firstly, then wait for the price then proceed SELL.
3.The big advantage of Perpetual Contract is to use very small amount as the entry investment, plus leverage to make deal. It is useful for beginners to take it as the test.
The benefits of Perpetual Contracts
1.The primary benefit of Perpetual Contracts is that you are allowed to hold them indefinitely.
2.The lack of an expiration or execution date means that even when prices move against your position, you are not immediately stuck with a losing trade.
Instead, as long as you have enough funds to maintain your positions, you can continue to hold and wait until prices move in your favor again.
3.The possibility for margin or leverage trading of up to 100x.
Since the leverage is high, traders can open or close a position with only a fraction of their account balance.
Contracts, therefore, offer the potential to make a higher return from a smaller initial outlay than investing directly in the underlying security.
4.Investors can minimize risk by interpreting the funding rate.
Another benefit is that speculators can reduce their risk by considering the funding rate.
The funding rate is the mechanism that provides price stability between the mark price and the index price (target price).
5.You can win it from both Long and Short.
No matter the market is BULL o BEAR, once you have the right analysis, you will win.
6.Without Slippage - In the crypto coin market, some immoral exchanges use “Pump and dump” and “Internet error” and “mark price” to control the market trend and price to cheat out of money.
Here are some tips as following:
1.Do: Use the “No Expiration Date” as the features to your advantages.
2.Don't: Be Afraid to Close the Contract.
1).Do: Use Stop-Loss & Take-Profit orders.
2).Do: Ensure You Have a Diverse Portfolio.
3).Don't: Spend More Than You Can Afford.
4).Do: Take Advantage of Leverage.
5).Do: Your Own Research.
Summay:
1.Perpetual Contracts can be traded continuously forever.
Traders don’t need to worry about any approaching expiry date or contango structure upon future roll-over.
In that sense, perpetual contract trading is more flexible and more active than single futures contract in the crypto market.
2.Perpetual contracts always trades close to spot market, the basis risk is minimal and bounded.
3.Futures contracts allow traders to hedge the market by having an offsetting number of futures contracts. When there is a gain from the futures contract, there is always a loss from the spot market, or vice versa.
Let's go to Question Session.
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