The highly popular perpetual futures contracts, which have been a staple in the crypto market, are now entering the regulated American markets, leaving Wall Street to ponder whether they are a fleeting trend or a lasting threat to traditional futures. With Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch and the Commodity Futures Trading Commission (CFTC) clearing the way for regulated perpetual futures, the product is poised to become a significant player in the US market. Perpetual futures, also known as 'perps,' are similar to standard futures contracts but do not expire, eliminating the need for traders to close or roll over positions.
Instead, periodic funding payments help keep the contract's price aligned with the underlying asset. According to Bank of America, the annual perpetual futures volume is estimated to be around $90 trillion. Although interest in perps is growing, large financial institutions are still studying the products rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, as they have more freedom to test new venues and accept operational risk.
The potential use cases for perps extend beyond speculation, as they could help traders manage weekend risk and provide a source of price discovery. However, the demand for perps needs to be substantial to justify the commitment of capital, and the regulatory environment is still evolving, with key questions surrounding the treatment of perpetual contracts as futures or swaps.