Understanding Perpetual Swaps: The Most Traded Crypto Instrument

Perpetual swaps, also known as 'perps,' have revolutionized the crypto market by providing a unique trading instrument that offers leveraged exposure to asset prices without the need for ownership. This innovative financial product has become the go-to choice for professional traders, hedge funds, and retail speculators. Despite their widespread adoption, the inner workings of perpetual swaps remain poorly understood. To grasp the concept of perps, it's essential to examine the traditional financial instruments that preceded them. In conventional finance, investors typically gain leveraged exposure to an asset through futures contracts, which involve an agreement to buy or sell at a predetermined price on a specific date. However, this approach created persistent issues in the crypto space. The introduction of perpetual swaps by BitMEX in 2016 addressed these problems by eliminating the expiry date, allowing traders to maintain positions indefinitely. This groundbreaking innovation has had a lasting impact on the financial world, with perpetual swaps now being considered for traditional assets, and their application being explored by regulators in the U.S.