What is a perpetual contract?

Perpetual contracts are crypto asset derivatives derived from futures contracts in traditional financial markets. Futures contracts are agreements to buy or sell commodities, currencies or other financial assets at a predetermined price at a specific time in the future.

The difference between contract trading and spot trading

General spot trading refers to transactions that are settled immediately during the buying and selling process. Taking the BTC-USDT trading pair as an example, during the transaction, the trader can get BTC of equal value by selling 100 USDT. After the transaction is completed, the trader no longer holds the sold USDT, but holds BTC of equal value of 100 USDT. The trader has direct ownership of this part of BTC and has the right to participate in community voting.

Spot trading is usually long (bullish), while shorting usually requires the use of leveraged trading.

Contracts are contracts that represent the value of a specific crypto asset. Whether in the long or short process, traders do not own the underlying crypto asset. Therefore, traders holding contracts do not have voting rights or the right to participate in staking.

The essence of contract trading is margin futures contract trading. In this process, leverage is often involved. Traders only need to pay a certain percentage of margin to hold contracts of higher value, thereby achieving the effect of magnifying profits. However, when using leverage, the greater the possible profits, the greater the possible losses. For example, using 10x leverage for BTC-USDT contract trading, traders only need 10USDT of margin to hold a BTC position exposure worth 100USDT. When the BTC price rises by 5%, the profit that can be achieved through the 10x leverage of the position exposure is (100USDT*5%-100USDT)*10x=5USDT. The trader only used 10USDT of margin to obtain 5USDT of profit, and the yield reached 50%. But at the same time, if the BTC price falls by 5%, the loss is 100*-5%*10x=-5USDT, that is, the yield brought by the 10USDT margin is -50%.

The difference between perpetual contract trading and traditional futures trading

Traditional futures contract trading is an agreement to buy or sell commodities, currencies or other financial assets at a predetermined price at a specific time in the future. Usually, it is based on a specific underlying asset, such as agricultural products, precious metals, etc., and is delivered at a specific time according to the agreed price.

Perpetual contract trading is a financial asset trading agreement that is not based on a specific crypto asset but does not have a specific delivery date. Users can choose to hold their positions indefinitely.

What are the types of perpetual contracts in the crypto market?

According to the type of settlement currency, it is usually divided into USDT-based (U-based) and currency-based.

The currency standard is a contract that uses Bitcoin as the settlement target, such as the BTC/USD trading pair contract. The BTC assets in the contract account are used to complete the mortgage and profit and loss settlement process. Due to the large fluctuations of Bitcoin itself, in addition to the price of the contract itself, the price of Bitcoin is also fluctuating. Therefore, the currency standard makes it easier to expand profits or losses.

U-standard is a contract that uses the stable currency USDT as the settlement target, such as the BTC/USDT trading pair contract. Whether it is long or short, it is necessary to transfer USDT to the contract and use USDT to settle the final profit and loss. Since the price of USDT itself is more stable, the additional rise and fall caused by the price fluctuations of certain currencies can be avoided in contract transactions.