Perpetual contracts

Perpetual Contracts: A Beginner's Guide

Welcome to the world of cryptocurrency trading! You've likely heard about buying and holding Bitcoin or Ethereum, but there's a whole other side to crypto: trading derivatives. One popular type of derivative is the *perpetual contract*. This guide will break down what they are, how they work, and how to get started.

What are Perpetual Contracts?

Imagine you want to speculate on the price of Bitcoin, but you don’t actually want to *own* any Bitcoin. A perpetual contract lets you do just that. It’s an agreement to buy or sell Bitcoin (or other cryptocurrencies) at a future date, but unlike a traditional futures contract, it has *no* expiration date. That's where the “perpetual” comes from.

Think of it like this: you're making a bet on whether the price of Bitcoin will go up or down, without ever taking possession of the Bitcoin itself. You're trading a contract representing the value of Bitcoin.

Long vs. Short Positions

There are two main ways to trade perpetual contracts:

**Going Long:** This means you *believe* the price of the underlying asset (like Bitcoin) will *increase*. You essentially "buy" the contract, hoping to sell it later at a higher price.
**Going Short:** This means you *believe* the price of the underlying asset will *decrease*. You "sell" the contract, hoping to buy it back later at a lower price.

Let’s say Bitcoin is currently trading at $60,000.

**Long Position:** You buy a Bitcoin perpetual contract at $60,000. If Bitcoin goes up to $65,000, you can sell your contract for a profit of $5,000 (minus fees).
**Short Position:** You sell a Bitcoin perpetual contract at $60,000. If Bitcoin goes down to $55,000, you can buy back the contract for a profit of $5,000 (minus fees).

Leverage: Amplifying Your Gains (and Losses)

This is where things get interesting – and potentially risky. Perpetual contracts allow you to use **leverage**. Leverage means you can control a larger position with a smaller amount of capital.

For example, with 10x leverage, $1,000 could control a $10,000 position.

**Potential Gains:** Higher leverage amplifies your profits if your prediction is correct.
**Potential Losses:** Higher leverage *also* amplifies your losses if your prediction is wrong. You could lose your entire initial investment (and potentially more, depending on the exchange) very quickly.

- Important:** Leverage is a powerful tool, but it's not free money. It significantly increases risk. Always use leverage cautiously and understand the potential downsides. Learn about risk management before using leverage.

Funding Rates

Because perpetual contracts don't expire, exchanges use something called a **funding rate** to keep the contract price (called the “mark price”) closely aligned with the spot price (the current market price of the actual cryptocurrency).

**Positive Funding Rate:** If the perpetual contract price is *higher* than the spot price (meaning more people are long), long positions pay short positions.
**Negative Funding Rate:** If the perpetual contract price is *lower* than the spot price (meaning more people are short), short positions pay long positions.

Think of it like a periodic fee for holding a position. Funding rates are typically paid every 8 hours. You can find more information about funding rates on exchanges like Register now, Start trading and Join BingX.

How to Trade Perpetual Contracts: A Step-by-Step Guide

1. **Choose an Exchange:** Select a reputable cryptocurrency exchange that offers perpetual contract trading. Popular options include Register now, Start trading, Join BingX, Open account and BitMEX. 2. **Create and Verify Your Account:** You'll need to provide personal information and complete verification steps for security. 3. **Deposit Funds:** Deposit cryptocurrency (like USDT or BUSD) into your futures trading account. These are often used as collateral. 4. **Select a Contract:** Choose the perpetual contract you want to trade (e.g., BTCUSD, ETHUSD). 5. **Choose Your Position:** Decide whether to go long or short. 6. **Set Your Leverage:** Carefully select your leverage level. Start with low leverage (e.g., 2x or 3x) until you gain experience. 7. **Place Your Order:** Enter the amount you want to trade and place your order. There are different order types, such as market orders and limit orders. Learn about order types before trading. 8. **Monitor Your Position:** Keep a close eye on your position and be prepared to adjust or close it if the market moves against you.