When discussing crypto trading with experienced traders, the conversation often revolves around perpetual futures, or 'perps' - a type of derivative contract that enables traders to control large positions with minimal capital. Unlike traditional futures, perps do not have an expiration date, making them a popular choice among traders.
Both retail and institutional traders appreciate perps for their ability to provide deep liquidity, low trading fees, and high margin efficiency. However, traders are also concerned about the funding rates associated with perps, which can add up over time and eat into their profits. To understand the appeal and risks of perps, CoinDesk spoke with seasoned traders who shared their insights on the benefits and drawbacks of these contracts. According to Lucas Krenn, a derivatives trader at STS Digital, perps are the 'plumbing underneath everything' his firm does, as they offer a way to trade with high leverage and low costs.
Kenneth Ong, an independent trader, echoed this sentiment, highlighting the advantages of perps, including better fills, lower fees, and the ability to run both long and short positions simultaneously. While perps have democratized access to futures trading, they also come with unique challenges, such as the volatile funding-rate exposure that cannot be quantified or hedged. 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.' Despite these risks, perps continue to gain popularity, with traders expecting them to play an increasingly important role in the crypto market. With their ability to provide liquidity and facilitate price discovery, perps are likely to remain a key component of the crypto trading landscape.