CoinEx | What is the difference between traditional futures contracts and perpetual contracts?

For many novice users who have just entered the crypto industry, it is difficult to distinguish the difference between futures contracts (also known as delivery contracts) and perpetual contracts in a short period of time. In addition, for new investors who are playing contracts for the first time, Whether to choose a traditional futures contract or a perpetual contract is also a question that needs to be considered. So what is the difference between these two contracts, today's article will explain in detail.

First of all, a futures contract is the trading object or subject matter of futures trading. It is a standardized contract uniformly formulated by the futures exchange, which stipulates the delivery of a certain quantity and quality of physical commodities or financial commodities at a specific time and place in the future. Let's take an example. For example, the Chicago Board of Trade stipulates that the trading unit of a wheat futures contract is 5,000 bushels. If a trader buys a wheat futures contract, it means that he needs to buy 5,000 bushels of wheat on the expiration date specified by the contract. physical goods.

A perpetual contract is a cryptocurrency derivative similar to a futures contract, similar to a margined spot market, whose price is anchored by the funding rate to the spot market price of the underlying asset. Compared with futures contracts, the biggest feature of perpetual contracts is that there is no delivery date or settlement date, and users can hold positions indefinitely. Let’s still give an example. Suppose the user opens a position in the BTC/USDT forward contract market on the trading platform. Unless the position is liquidated or the user manually closes the position, the user can hold the position indefinitely, and there are no rules and restrictions on the delivery date.

In general, the differences between perpetual contracts and traditional futures contracts mainly include the following points:

1. The subject matter is different

Most traditional futures contracts are based on a physical commodity or financial asset, such as soybeans, oil, stocks and bonds.

The subject matter of perpetual contracts is mainly encrypted assets, such as forward contracts BTC/USDT, ETH/USDT, etc.

2. Different trading hours

The trading hours of traditional futures contracts are uniformly set by the futures exchange, usually 9 hours a day, with delivery and settlement on a monthly, quarterly or annual basis. The trading time of perpetual contracts is 7*24 hours, and users can buy and sell transactions on the platform at any time, and there is no delivery settlement date.

3. Different design mechanisms

Traditional futures contracts usually adopt the mechanism of “passing through and sharing”. If some users are unable to close their positions in time due to drastic market fluctuations, that is, the margin cannot cover the losses, all the profitable users of the platform will share the losses of the users who crossed the positions.

Perpetual contracts usually use an automatic reduction mechanism to reduce market risks by reducing the position of the counterparty. It is worth mentioning that CoinEx's perpetual contracts use multiple contract mechanisms such as insurance funds and automatic reduction of positions. The insurance fund can guarantee users to cover their positions 0 apportionment.

4. The trading price of perpetual contracts is usually closely related to the spot market

Unlike futures contracts whose prices may deviate from their underlying spot prices, perpetual contracts are usually closely linked to the price of the underlying they track, that is, the trading price of perpetual contracts is closely related to the spot market.

Perpetual contracts are not easy to be liquidated by malicious "pins" against the spot price, while futures contracts are more likely to be liquidated by "pins". The price of a futures contract is generally the trading platform's own market price, which will be affected by the "buy one price" and "sell one price" of the market price.

It is worth noting that CoinEx adopts a uniquely designed and reasonable mark price, which is valued on many mainstream exchanges, thereby reducing market deviation; at the same time, it adopts a funding rate mechanism to ensure that the contract price is basically the same as the spot price.

So which contract trading mode should a contract trading novice user choose? The author suggests that contract novice users can start with perpetual contracts. First, the perpetual contract has no expiration date, and users can always hold the position; secondly, the perpetual contract can flexibly adjust the leverage. For example, the CoinEx perpetual contract provides up to 100 times leverage, and users can flexibly adjust after opening a position according to their trading needs. Leverage, the platform can ensure the best trading experience for users while providing flexible risk protection.