The Double-Edged Sword of Perpetual Futures: Insights from Crypto Traders

When discussing crypto trading with experienced traders, perpetual futures, or 'perps,' are often the first topic that comes up. These derivatives contracts allow traders to control larger positions with less capital, and their popularity stems from their deep liquidity, low trading fees, and efficient margin usage. However, traders also express concerns about the funding rates associated with perps, which can add up over time and affect the profitability of trades. To understand the advantages and disadvantages of perps, CoinDesk spoke with traders who have thrived in the perpetual futures market. They explained that perps are not just one tool among many, but rather the primary instrument for crypto-native firms, especially for altcoins with limited liquidity in dated futures. The traders highlighted the benefits of perps, including better fills, lower fees, and the ability to run both long and short positions simultaneously. Nevertheless, they also emphasized the importance of considering funding rates, which can be a significant expense for traders. The funding rate is a recurring cost for keeping positions open and can be a burden if the market doesn't move as expected. Traders warned that funding rates can be unquantifiable and unhedgeable, making them a unique pain point for perps. Despite these concerns, perps have democratized futures trading by providing access, cost efficiency, and margin efficiency. As the crypto market continues to evolve, it is essential to understand the intricacies of perps and their potential impact on trading strategies.