The Dual Nature of Perpetual Futures: Benefits and Drawbacks According to Crypto Traders

When discussing crypto trading, savvy traders often bring up perpetual futures, or 'perps,' which are derivatives contracts allowing for larger positions with less capital. Perps function similarly to standard futures but without an expiry date. For altcoin traders, perps are often the only viable derivatives option due to illiquid dated futures and spot markets. Traders praise perps for their deep liquidity, low fees, and efficient margin use, but express concern over recurring funding rates. Funding rates are interest charges that accumulate over time, and traders worry about their impact on trade profitability. The perpetual nature of perps enables price discovery to occur at any time, not just during market hours. However, traders like Lucas Krenn and Kenneth Ong caution that funding rates can be a significant burden, especially for long-term positions. Krenn notes that funding rates are unquantifiable at the point of trade and unhedgeable afterwards, making them a unique pain point for perps. Despite these concerns, perps have democratized futures trading by addressing issues of access, cost, and margin efficiency. As Krenn puts it, 'Until there is a liquid dated curve in crypto, the whole market is carrying an interest rate exposure it cannot price and cannot hedge.'