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 have no expiration date, making them a unique and attractive option for traders. For altcoin traders, perps are often the only viable avenue for derivatives trading, as dated futures for these assets are typically illiquid. CoinDesk spoke with traders who have thrived in the perps market to understand what sets them apart from other derivatives and how they cater to both institutional and retail traders.
The traders unanimously agreed that perps offer deep liquidity, low trading fees, and efficient margin usage. However, they also expressed concerns about the funding rates, which can add up over time and impact trading costs. One of the primary reasons traders prefer perps is their ability to provide better fills, lower fees, and the option to run both long and short positions simultaneously.
This is particularly beneficial for retail traders, who can take advantage of the hedge mode to hold both bullish and bearish bets on the same token. The perpetual nature of perps has also shifted price discovery to occur around the clock, rather than just during market hours.
Traders have noticed that perps allow for more efficient risk management, as they require only a fraction of the position's value as collateral. This enables traders to split their capital across multiple venues and tokens, making it easier to manage risk. Despite the benefits, traders are cautious about the funding rates, which can be a significant burden if not managed properly. The funding rate is typically charged every eight hours and can fluctuate over time, making it difficult for traders to quantify and hedge.
As the crypto market continues to evolve, perps are likely to play a significant role in shaping the future of trading. With their unique characteristics and benefits, perps have democratized access to futures trading, but it's essential for traders to be aware of the potential pitfalls, particularly the volatile funding-rate exposure.