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.
Unlike standard futures, perps do not have an expiration date, making them a unique and popular choice among traders. For altcoin traders, perps are often the only viable option for derivatives trading due to the lack of liquidity in dated futures and spot markets. CoinDesk spoke with traders who have thrived in the perpetual futures market to understand what sets perps apart from other derivatives and how they cater to the needs of both institutional and retail traders. The traders unanimously agreed that perps offer deep liquidity, low trading fees, and efficient margin usage, making them an attractive choice.
However, they also expressed concern over funding rates, which can add up over time and impact profitability. So, why do traders prefer perps?
According to Lucas Krenn, a derivatives trader at STS Digital, perps are the backbone of their operations, providing the necessary liquidity and flexibility for trading. Kenneth Ong, an independent trader, echoed this sentiment, highlighting the benefits of perps for retail traders, including better fills, lower fees, and the ability to hedge positions. Both traders emphasized the importance of margin efficiency in perps, which allows for greater trading exposure with minimal capital.
The perpetual nature of perps has also shifted price discovery, enabling traders to react to news and events in real-time, rather than waiting for traditional market hours. While perps offer many advantages, they also come with unique challenges, such as funding rates, which can be volatile and difficult to quantify. Traders must carefully consider these risks when trading perps, as they can significantly impact profitability. In conclusion, perps have democratized futures trading by providing access, affordability, and margin efficiency, but they also introduce new pain points, such as funding rate exposure.
As the crypto market continues to evolve, it is essential for traders to understand the intricacies of perps and navigate these challenges to succeed in the perpetual futures market.