When discussing crypto trading with experienced traders, the topic of perpetual futures, or 'perps,' often comes up. These derivatives contracts enable traders to control larger positions with less capital.
Unlike standard futures, perps do not have 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. CoinDesk spoke with traders who have thrived in the perps market, and they highlighted the benefits of deep liquidity, low trading fees, and efficient margin use. However, they also expressed concerns about funding rates, which can add up over time.
Traders cited the example of tokenized oil trading, where perps allowed for price discovery to occur outside of traditional market hours. Despite the benefits, traders warned about the risks associated with perps, including liquidations and the impact of funding rates on trade profitability.
The funding rate, which is typically charged every eight hours, can be a significant burden for traders who hold positions for extended periods. While perps have democratized futures trading, they also introduce unique challenges, such as volatile funding-rate exposure. As one trader 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.'