A perpetual contract is an innovative financial derivative. The contract is similar to a traditional futures contract. The biggest difference is that the perpetual contract has no expiration date or settlement date, and users can hold positions indefinitely.
In addition, perpetual contracts introduce the concept of spot price index, and through mechanisms such as funding rates, the price of perpetual contracts returns to the spot index price. Therefore, unlike traditional futures, the price of perpetual contracts will not change most of the time. Too much deviation from the spot price.
Investors can buy the long contract to get the virtual digital currency price increase, or sell short to get the virtual digital currency decline.
The difference with futures contracts is:
1. Expiry date: Each delivery contract has a fixed expiry delivery date and delivery price; a perpetual contract has no expiry delivery date and never expires.
2. Funding rate: Since there is no expiration date, the perpetual contract needs to use the "funding rate mechanism" to anchor the contract price to the spot price.
3. Underlying index: a reference index for forced liquidation of positions, which effectively reduces unnecessary frequent liquidation during market fluctuations.
4. Tiered maintenance margin rate system: The maintenance margin rate is the minimum margin rate required for users to maintain their current positions. When the margin rate is lower than the maintenance margin rate, it will trigger a liquidation or a forced partial reduction. A tiered maintenance margin rate system is implemented for users of different position sizes. The larger the user's position, the higher the maintenance margin rate and the lower the maximum leverage that the user can choose.