The emergence of perpetual futures in the US market signals a significant shift in the trading landscape. Having gained immense popularity in the crypto space, these contracts are now being introduced to the traditional market. Following the Commodity Futures Trading Commission's approval, Kalshi and Coinbase have been cleared to offer regulated perpetual futures, with Kalshi's contracts reaching $1 billion in trading volume within a week of launch.
Perpetual futures, also known as 'perps', are similar to standard futures contracts but lack an expiration date, with periodic funding payments maintaining the contract's price close to the underlying asset. Bank of America estimates the annual volume of perpetual futures to be around $90 trillion.
Despite the interest, large financial institutions are adopting a wait-and-see approach, studying the product rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are likely to be the first movers. The use cases for perps extend beyond speculation, potentially helping traders manage weekend risk and providing a source of price discovery. However, the demand must be sufficient to justify the commitment of capital, and the current lack of depth and regulatory clarity are significant concerns.
A regulatory battle is shaping up, with questions surrounding the treatment of perpetual contracts as futures or swaps, affecting margin rules and registration duties. The debate is also becoming increasingly competitive, with incumbent exchanges protecting their existing businesses.
For now, Wall Street's view is cautious, with trading firms, regulators, and exchanges monitoring the situation, but the largest banks are unlikely to lead the charge until the rules, liquidity, and infrastructure are more established.