Perps

Perps, short for perpetual contracts, are a type of derivative in cryptocurrency and traditional finance. They are similar to futures contracts but differ in that they do not have an expiry date. Here’s a breakdown of their key features:

Key Characteristics of Perps:

1. No Expiry Date: Unlike traditional futures, perpetual contracts can be held indefinitely. Traders can enter and exit their positions whenever they choose.
2. Funding Rates: To keep the perp’s price in line with the spot price of the underlying asset, exchanges use a funding rate mechanism. If the contract price is higher than the spot price, long position holders pay a fee to short holders (and vice versa), ensuring the price stays close to the underlying asset’s value.
3. Leverage: Perps often allow traders to use leverage, meaning they can control larger positions than their initial investment. However, this increases both potential profits and risks.
4. Trading on Margin: Like other derivatives, perpetual contracts can be traded using margin, enabling traders to borrow funds to amplify their positions.
5. Popular in Crypto: Perps are particularly popular in cryptocurrency markets, where they are widely used for speculative trading on assets like Bitcoin and Ethereum.

Example:

• If you buy a perpetual contract on Bitcoin, you are betting on the future price of Bitcoin without owning the actual asset and without worrying about an expiry date, but you’ll pay or receive funding rates periodically based on the market balance.

Perps are especially common on platforms like Binance, Bybit, and dYdX. They are often used by traders for speculative purposes or for hedging positions.