When discussing cryptocurrency trading with experienced traders, the topic of perpetual futures, or 'perps,' inevitably comes up. These derivatives contracts allow traders to control large positions with minimal capital. Perps function similarly to standard futures but without an expiry date, making them a popular choice among traders.
For altcoin traders, perps are often the only viable option for derivatives trading, as dated futures for these assets are typically illiquid, and the spot market is not ideal for short-term trading. Traders appreciate perps for their deep liquidity, low trading fees, and efficient margin usage. However, funding rates, which are recurring costs for maintaining open positions, are a significant concern. Traders view perps as a necessary tool, particularly for assets with limited liquidity.
The 'perpification' of various assets is expected to gain momentum in the coming years, with tokenized oil trading being a prime example. Nevertheless, traders must beware of the funding rate, which can be a substantial burden if not managed properly.
The lack of a built-in mechanism to lock in funding rates exposes traders to floating rates, making it challenging to quantify and hedge against potential losses. While perps have democratized futures trading, addressing issues of access, cost, and margin efficiency, they also introduce unique challenges, such as volatile funding-rate exposure. As the crypto market continues to evolve, traders must navigate these complexities to succeed in the perpetual futures market.