What is perpetual trading

Introduction

Perpetual contracts have given the web3 space a much needed instrument to take directional bets and execute hedges in a seamless manner.

A perpetual contract is a derivative product that is similar to a futures contract but has no expiration date. What’s so significant about this versus traditional spot markets or futures can be broken down to 3 main things:

1. Capital Efficiency via Leverage: The advantage of trading a perpetual contract over a spot contract is that perpetuals offer the trader the ability to trade on margin: Rather than having to fund the full cost of the trade (eg. 10 ETH) , the trader has the option to put down only part of the notional in margin (eg. 1 ETH), opening up capital to be allocated elsewhere

2. No Requirement to hold Underlying Assets: A perpetual future is a derivative, which means that while the profits or losses of the trade depend on the price of the underlying - like ETH for example, there is no real need to own ETH in order to trade it. As long as there is sufficient collateral provided and a price feed, a perpetual contract can be traded for almost any token.

3. No Physical Settlement of Underlying Assets: Trades can be held with leverage in perpetuity as long as the trader has sufficient collateral to pay for ongoing fees. There is no physical settlement of the underlying - for example, ETH, as there is no expiration date. This makes trading perpetuals much easier as when a trade is closed, it can be settled straight in USDC on your account, rather than having to deal with multiple tokens or selling the futures before they expire.

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