The Dual Nature of Perpetual Futures: Benefits and Drawbacks According to Crypto Traders

When discussing crypto trading with experienced traders, the topic of perpetual futures, or 'perps,' often comes up. These derivatives contracts allow traders to control large positions with minimal capital. Unlike standard futures, perps have no expiration date, making them a unique and popular choice among traders. For altcoin traders, perps are often the only viable option for derivatives trading, as dated futures for these coins are typically illiquid. CoinDesk spoke with traders who have thrived in the perps market to understand what sets them apart from other derivatives and how they cater to the needs of both institutional and retail traders. The traders unanimously agreed that perps offer deep liquidity, low trading fees, and efficient margin usage, making them an attractive choice. However, they also expressed concerns about the funding rates, which can add up over time and impact trading costs. So, why do traders prefer perps? According to Lucas Krenn, a derivatives trader at STS Digital, perps are the primary tool for crypto-native firms, as they offer a more efficient and cost-effective way to trade. Kenneth Ong, an independent trader, echoed this sentiment, highlighting the benefits of perps for retail traders, including better fills, lower fees, and the ability to run both long and short positions simultaneously. Both traders emphasized the importance of margin efficiency in perps, which allows traders to manage risk across multiple venues and tokens with minimal capital. The perpetual nature of perps has also shifted price discovery to a 24/7 process, with traders reacting to news and events in real-time. While perps offer many advantages, they also come with unique challenges, such as the funding rate, which can be volatile and difficult to quantify. Traders are exposed to this rate, which can change every eight hours, and it can become a significant burden if the market doesn't move as expected. Despite these challenges, traders believe that perps will continue to gain momentum in the coming years, with tokenized oil trading and other commodities potentially leading the way. As the crypto market evolves, it's essential for traders to understand the benefits and drawbacks of perps and how to navigate their unique characteristics to succeed in this rapidly changing landscape.