Perpetual futures, or 'perps,' have become a staple in the crypto trading landscape, offering traders the ability to control large positions with minimal capital. Both retail and institutional traders appreciate the deep liquidity, low fees, and high margin efficiency that perps provide.
However, they also express concerns over the funding rates, which can add up over time and negatively impact trading profits. According to Lucas Krenn, a derivatives trader at STS Digital, perps are the 'plumbing underneath everything' his firm does, particularly for altcoins where dated futures liquidity is scarce.
Kenneth Ong, an independent trader, echoes this sentiment, highlighting the benefits of perps for retail traders, including better fills, lower fees, and the ability to hold both long and short positions simultaneously. Despite these advantages, traders worry about the funding rate, which can be volatile and difficult to quantify. Krenn notes that the funding rate is 'unquantifiable at the point of trade and unhedgeable afterwards,' making it a significant concern for traders.
Ong warns that the funding rate 'can potentially balloon to the point where a profitable trade loses money' if held for extended periods. The traders also discuss the impact of perps on price discovery, with Ong citing the example of tokenized oil trading during the Iran conflict, where perps allowed for more efficient price discovery outside of traditional market hours. Krenn sees perps as a powerful instrument that will continue to spread into new asset classes, making them a crucial component of the crypto trading landscape.
Nevertheless, traders must be aware of the unique pain points associated with perps, including the volatile funding-rate exposure, to navigate the market effectively.