Regular futures and perpetual futures are the two main types of contracts related to crypto trading. These two contracts differ on several levels that should be known, especially for the begginer investors.
Conventional futures are standardized contracts that are written by futures exchanges. These are basic contracts that correspond to crypto trading or all kinds of activity related to crypto futures. A conventional futures contract involves delivering physical or financial commodities of a quantity specified in advance. Perpetual futures contracts have similarities to classic contracts. These are crypto derivatives whose price is closely tied to the price of the spot asset via the funding rate. Unlike the classic futures contract, the perpetual futures contract is not linked to a time constraint in terms of delivery or settlement. The trader can keep a single position all his life if he wishes.
Regular futures contracts relate only to financial assets or physical commodities:
Perpetual futures contracts are exclusively subject to a cryptocurrency:
Conventional futures trading hours are set by the futures exchanges. In practice, they are 9 hours a day with monthly, quarterly or annual delivery and/or settlement.
On the other hand, perpetual futures contracts are negotiable every day (24 hours a day, on any cryptocurrency trading platform. In addition, these types of contracts are not subject to delivery constraints and/or of settlement.
In practice, regular futures work on the basis of a clawback mechanism. The trader must pay the cost of recovering his profits to compensate for the loss suffered by other traders who could not sell their position in time because of a price that was too high.
Perpetual futures contracts are based on the Auto-deleveraging (ADL) mechanism. It is a concept which makes it possible to minimize the losses by reducing the position of the adversaries.
Conventional futures contracts often deviate from the spot price of their underlying asset. Conversely, the prices of perpetual futures essentially depend on the price of the underlying asset they are tracking. They are immune to any risk of malicious market manipulation. In addition, their price is often aligned with the current stock market price, which favors both the seller and the buyer.
In practice, perpetual futures contracts are more suitable for the beginners investors. These types of contracts have many advantages, such as: