The good and the bad of perps, according to crypto traders
Both retail and institutional traders worry about the funding rate.
In the world of crypto trading, perpetual futures, or "perps," are the talk of the town. These derivatives contracts enable traders to control larger positions than the money in their accounts. Perps differ from standard futures by lacking an expiry date, offering traders a continuous trading environment. While crypto traders can engage in various markets, perps are the preferred choice for altcoin derivatives due to their deep liquidity and cheap trading fees.
Traders can simultaneously hold long positions and short positions on the same token through hedge mode, a feature unavailable in regulated venues like CME.
Perps provide margin efficiency, allowing traders to use a fraction of their capital for positions while maintaining substantial exposure. This feature has become increasingly important as dated futures liquidity is thin and illiquid for altcoins. The fragmentation of perps across multiple exchanges allows traders to manage risk efficiently, with capital split across various venues.
However, traders express concern over funding rates, which are recurring costs for maintaining open positions, similar to interest charges. These rates can accumulate over time, potentially impacting profitability. While liquidations or forced closures due to margin shortage are often cited as downsides, traders Krenn and Ong believe the benefits of perps outweigh the drawbacks, foreseeing continued growth and diversification into new asset classes.
Written by urgent.news from CoinDesk's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
