Perpetual futures
Perpetual Futures: A Beginner's Guide
Welcome to the world of cryptocurrency trading! This guide will walk you through **perpetual futures**, a more advanced way to trade digital assets like Bitcoin and Ethereum. Don't worry if it sounds complicated – we'll break it down step-by-step.
What are Futures Contracts?
Imagine you're a farmer who expects to harvest wheat in three months. You're worried the price of wheat might fall by then. A *futures contract* lets you agree *today* to sell your wheat at a specific price in three months. This protects you from price drops.
In the crypto world, futures contracts are agreements to buy or sell a cryptocurrency at a predetermined price on a future date. Traditional futures contracts have an *expiration date*.
What Makes Perpetual Futures Different?
Perpetual futures are similar to traditional futures, *except they don't have an expiration date*. They allow you to hold a position indefinitely, as long as you have enough funds to cover the margin requirements (explained later). This is the "perpetual" part. They are very popular on exchanges like Register now and Start trading.
Key Terms You Need to Know
- **Long:** Betting the price of the cryptocurrency will *increase*. You *buy* a contract.
- **Short:** Betting the price of the cryptocurrency will *decrease*. You *sell* a contract.
- **Contract:** An agreement to buy or sell a specific amount of cryptocurrency at a specific price.
- **Margin:** The amount of money you need to have in your account to open and maintain a position. It’s like a security deposit.
- **Leverage:** A tool that allows you to control a larger position with a smaller amount of capital. It magnifies both profits *and losses*. (See Leverage Explained for more details).
- **Funding Rate:** A periodic payment exchanged between long and short position holders. It keeps the perpetual contract price close to the spot price of the underlying asset. If more people are long, shorts pay longs; if more people are short, longs pay shorts.
- **Liquidation Price:** The price at which your position will be automatically closed to prevent losses exceeding your margin.
- **Mark Price:** The current value of the contract, based on the spot price and a funding rate calculation. Used to determine liquidations.
- **Open Interest:** The total number of outstanding futures contracts for a particular asset. A good indicator of trading volume intensity.
- **Position Size:** The total value of your trade, calculated by multiplying the contract size by the leverage.
How Do Perpetual Futures Work? A Simple Example
Let's say Bitcoin is trading at $60,000. You believe it will go up, so you decide to *go long* using 1x leverage.
1. You open a contract to buy $100 worth of Bitcoin. 2. Because you're using 1x leverage, you need $100 margin in your account. 3. If Bitcoin goes up to $61,000, your $100 position is now worth $101. You make a $1 profit (minus fees). 4. If Bitcoin goes down to $59,000, your position is now worth $99. You lose $1 (plus fees).
Now, let's say you use 10x leverage.
1. You open a contract to buy $100 worth of Bitcoin. 2. Because you're using 10x leverage, you only need $10 margin. 3. If Bitcoin goes up to $61,000, your $100 position is now worth $101. You make a $1 profit, but because of the leverage, your profit is magnified to $10 (minus fees). 4. If Bitcoin goes down to $59,000, your position is now worth $99. You lose $1, magnified to $10 (plus fees). *This is why leverage is risky!*
Perpetual Futures vs. Spot Trading
Here's a quick comparison:
| Feature | Spot Trading | Perpetual Futures |
|---|---|---|
| Ownership | You own the actual cryptocurrency. | You trade a contract representing the cryptocurrency. |
| Expiration | No expiration. | No expiration (perpetual). |
| Leverage | Typically not available. | Available, amplifying gains and losses. |
| Funding Rates | Not applicable. | Applicable, based on market sentiment. |
| Complexity | Simpler for beginners. | More complex, requires understanding of margin and leverage. |
Practical Steps to Get Started
1. **Choose an Exchange:** Research and select a reputable cryptocurrency exchange that offers perpetual futures trading. Consider Join BingX, Open account or BitMEX. 2. **Create and Verify Your Account:** Follow the exchange's instructions to create an account and complete the necessary verification steps (KYC). 3. **Deposit Funds:** Deposit cryptocurrency into your futures trading account. 4. **Select a Contract:** Choose the perpetual futures contract for the cryptocurrency you want to trade (e.g., BTCUSD, ETHUSD). 5. **Set Your Position Size and Leverage:** Carefully determine your position size and leverage. *Start with low leverage (1x-3x) until you understand the risks.* 6. **Place Your Order:** Choose to go *long* or *short* and place your order. 7. **Monitor Your Position:** Keep a close eye on your position, margin, and liquidation price. 8. **Close Your Position:** When you're ready, close your position to realize your profit or cut your losses.
Risk Management is Crucial
Perpetual futures trading is *high-risk*. Here are some important risk management tips:
- **Never risk more than you can afford to lose.**
- **Use stop-loss orders** to automatically close your position if the price moves against you. (See Stop-Loss Orders for more information).
- **Start with small positions and low leverage.**
- **Understand the funding rate** and how it can affect your position.
- **Continuously educate yourself** about technical analysis, fundamental analysis, and trading psychology.
- **Avoid overtrading.**
Further Learning
- Cryptocurrency Exchanges
- Margin Trading
- Order Types
- Trading Volume Analysis
- Candlestick Patterns
- Moving Averages
- Relative Strength Index (RSI)
- Fibonacci Retracements
- Bollinger Bands
- Trading Strategies
- Risk Management in Crypto
- Funding Rate Strategies
- Liquidation Risk Mitigation
Disclaimer
This guide is for informational purposes only and should not be considered financial advice. Cryptocurrency trading is inherently risky, and you could lose money. Always do your own research and consult with a qualified financial advisor before making any investment decisions.
Recommended Crypto Exchanges
| Exchange | Features | Sign Up |
|---|---|---|
| Binance | Largest exchange, 500+ coins | Sign Up - Register Now - CashBack 10% SPOT and Futures |
| BingX Futures | Copy trading | Join BingX - A lot of bonuses for registration on this exchange |
Start Trading Now
- Register on Binance (Recommended for beginners)
- Try Bybit (For futures trading)
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Join our Telegram community: @Crypto_futurestrading
⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️