The Double-Edged Sword of Perpetual Futures in Crypto Trading

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 large positions with minimal capital, but they also come with unique challenges. Perps function similarly to standard futures, but without an expiry date, making them a popular choice among traders. However, the lack of expiry dates also means that traders must contend with funding rates, which can add up over time and eat into profits. To better understand the role of perps in crypto trading, CoinDesk spoke with traders who have thrived in this market, including Lucas Krenn, a derivatives trader at STS Digital, and Kenneth Ong, an independent trader. Both Krenn and Ong emphasized the importance of perps in crypto trading, citing their deep liquidity, low fees, and high margin efficiency as key advantages. Nevertheless, they also warned about the risks associated with funding rates, which can be volatile and difficult to predict. The always-on nature of perps has also shifted price discovery to occur around the clock, rather than just during traditional market hours. This has led to increased trading activity in perps, particularly during times of high market volatility. Despite the benefits of perps, traders must be aware of the potential risks, including liquidations and funding rate exposure. As Krenn noted, 'Until there is a liquid dated curve in crypto, the whole market is carrying an interest rate exposure it cannot price and cannot hedge.' In conclusion, perpetual futures have democratized access to futures trading, but they also require traders to navigate unique challenges and risks.