Future and perpetual (derivative) trading

[Oshosondy]

I started to trade in derivative market on some exchanges sometimes ago, to access it, you will click 'futures. This is confusing or am I the one that is not getting something right?

In my opinion, there is difference between future and perpetual trading, but both are on the same derivative market which is different from spot trading because their profit or loss is set at a predetermined date (future trading) or price (future and perpetual).

In future trading, it can be weekly, biweekly, monthly or quarterly. If a position is opened, there would be future date set for the trade to close.

In perpetual trading, no future date set for the open position to close, a trader will close the trade by himself if the liquidation price is not reached.

Perpetual trading and future trading are both derivative trading. Why are both referred to as futures on exchanges when no predetermined date set for perpetual? Even if perpetual trading is left for long, maybe it can be considered as future trading? If sclaping with perpetual, should that be regard as future?

Can perpetual trading be regarded as futures?

[1715551603]

1715551603

[1715551603]

1715551603

[Bitcoin_Arena]

Some people consider a perpetual contract or perpetual swap as a type of futures, except that it has no expiry date like the traditional futures contracts.  Personally, I think the two are different. There is probably just a mix-up between the understanding of Derivatives and futures

Wherein there is a perp ---> No expiry date, Futures ---> There's an expiry date in the "future" and all are derivatives. I believe some exchanges are supposed to tag them as "derivatives" rather than "futures"

[SquirrelJulietGarden]

With Perptual trading, when you have a position, the longer you let that position opens, the more interests you will have to pay for that exchange. Usually exchanges will have different shifts of funding rates within every 24 hours. It can be 3 or 4 shifts every day.

So even if your position at the end when you close it at profitable exit price, the longer you let that position opens, the less interest you will get at the end because the more in interest you will have to pay for exchange.

Perpetual trading is not future trading.

[adaseb]

The biggest difference is that perp swaps have funding rates while futures don’t. Futures have premiums  or backwardation but perp swaps are usually at mark price but there is a funding you pay every 8 hours.

Basically if you want a quick trade, trade the perp swaps. If you want a long term trade then trade the futures. And keep note of when they expire.

[Emitdama]

The biggest difference is that perp swaps have funding rates while futures don’t. Futures have premiums  or backwardation but perp swaps are usually at mark price but there is a funding you pay every 8 hours.

Basically if you want a quick trade, trade the perp swaps. If you want a long term trade then trade the futures. And keep note of when they expire.

In futures trading also, you need to pay interest on daily basis if you hold beyond the day cut off. In forex, if take long position then exchange will pay you interest (after 24 hours or next day) and if you take short position and if you hold beyond a day then you need to pay interest for your open position.

As per your explanation, we can say perpetual trading is a kind of spot trading with all other characteristics of futures trading?

On a side note I like recall one more definition I learned from other topic here: spot trading can be treated as zero leveraged futures trading (still we need to bother about price differences and expiry date).

[Oshosondy]

As per your explanation, we can say perpetual trading is a kind of spot trading with all other characteristics of futures trading?

No, perpetual trading looks more like future trading, only that there is no time set to close the position opened and that there is funding rate that would be deducted at specific period of time which likely would be after some hours like three times in a day.

On a side note I like recall one more definition I learned from other topic here: spot trading can be treated as zero leveraged futures trading (still we need to bother about price differences and expiry date).

Yes, but in perpetual, no time set for the position opened to be closed. In spot, orders are filled from spot price and not at derived price which should be slightly lesser than spot price in most time. Also that in spot trading, your gain or losses is in when you buy a coin, not by opening or closing a position.

If you are a trader, and you day trade or scalp, going 1x long position is like spot trading, but with some differences too. In spot market, you can not open short position is another difference.

[Bitcoin_Arena]

With Perptual trading, when you have a position, the longer you let that position opens, the more interests you will have to pay for that exchange. Usually exchanges will have different shifts of funding rates within every 24 hours. It can be 3 or 4 shifts every day.

So even if your position at the end when you close it at profitable exit price, the longer you let that position opens, the less interest you will get at the end because the more in interest you will have to pay for exchange.

Isn't the funding rate dynamic in perpetual swaps? Like longs pay shorts and shorts pay longs depending on the market conditions and the position one has opened?

So how will rates reduce as time goes on if market conditions are what mostly dictate the funding rates and who is going to get paid and who is paying?
Help me understand  

[Oshosondy]

With Perptual trading, when you have a position, the longer you let that position opens, the more interests you will have to pay for that exchange. Usually exchanges will have different shifts of funding rates within every 24 hours. It can be 3 or 4 shifts every day.

So even if your position at the end when you close it at profitable exit price, the longer you let that position opens, the less interest you will get at the end because the more in interest you will have to pay for exchange.

Isn't the funding rate dynamic in perpetual swaps? Like longs pay shorts and shorts pay longs depending on the market conditions and the position one has opened?

So how will rates reduce as time goes on if market conditions are what mostly dictate the funding rates and who is going to get paid and who is paying?
Help me understand 

Exchanges do not make profit from funding rate, it is peer to peer. Which means between traders. Funding rate are paid based on the difference between the perpetual contract price and the spot market price, bringing the perpetual contract price close to spot price and not allow further divergence.

Those that open a long position or short position can be given the funding or deducted from them. If the funding rate is positive, which means the perpetual contract price is higher than the mark price of the asset the trader opened a position for, in this case, those that open long position will pay those that open short position. If the funding rate is negative, those that open a short position will pay those that open a long position.

If you are interested to know more about funding rate, you can read this: https://www.binance.com/en/blog/futures/what-is-futures-funding-rate-and-why-it-matters-421499824684903247

[Eternad]

With Perptual trading, when you have a position, the longer you let that position opens, the more interests you will have to pay for that exchange. Usually exchanges will have different shifts of funding rates within every 24 hours. It can be 3 or 4 shifts every day.

So even if your position at the end when you close it at profitable exit price, the longer you let that position opens, the less interest you will get at the end because the more in interest you will have to pay for exchange.

Perpetual trading is not future trading.

Funding rate varies based on the difference of price on spot market and futures market. Funding rate will be charge negatively or positively on all open positions base on the current market condition. Funding rate shifts to negative or positive every exchange reset period so it’s not necessary that your open position will accumulate more interest since it depends on the market trend from time to time during your open position. You can gain or loss value on your margin based on the rate sign. This is how funding rate works on crypto.

I created this kind of topic on local board before since you can have profits by taking advantage on it. https://bitcointalk.org/index.php?topic=5399697.msg60195105#msg60195105

[febriyana]

I started to trade in derivative market on some exchanges sometimes ago, to access it, you will click 'futures. This is confusing or am I the one that is not getting something right?

In my opinion, there is difference between future and perpetual trading, but both are on the same derivative market which is different from spot trading because their profit or loss is set at a predetermined date (future trading) or price (future and perpetual).

In future trading, it can be weekly, biweekly, monthly or quarterly. If a position is opened, there would be future date set for the trade to close.

In perpetual trading, no future date set for the open position to close, a trader will close the trade by himself if the liquidation price is not reached.

Perpetual trading and future trading are both derivative trading. Why are both referred to as futures on exchanges when no predetermined date set for perpetual? Even if perpetual trading is left for long, maybe it can be considered as future trading? If sclaping with perpetual, should that be regard as future?

Can perpetual trading be regarded as futures?

I am still new in derivative trading concept.
Always trading on spot.

What you think the risk more dangerous, Future or Perpetual?
Is ETF like BNB3X is included in derivative?
If we want doing derivative trading, is borrowing money is must?

[Oshosondy]

Always trading on spot.

Spot is less risky, future is riskier.

What you think the risk more dangerous, Future or Perpetual?

They are both dangerous with higher leverage. The difference is that futures will close itself if the date set expires, but perpetual has no closing date.

Is ETF like BNB3X is included in derivative?

I do not know anything about those coins that assumes 2 or 3 times the price of a coin, I have only seen something like that when I was using Coinomi and looked like it is linked to Binance, but I do not see anything like that on Binance.

If we want doing derivative trading, is borrowing money is must?

Let me assume leverage trading is divided into two:

• margin trading
• derivative trading

If you want to borrow, you will use margin trading. You can go up to 3x for isolated margin and 10x for cross margin on most exchanges. Margin trading uses spot price.

Future and perpetual are both derivative trading. They both use derived price of the future and perpetual price. You can go up to 75x, 125x and even 200x on some exchanges. But it is very risky. Millions of dollars can be liquidaed in seconds, minutes or hours if using high leverage.

[Bitcoin_Arena]

>>>snip<<<

I know how funding rate works, but what I didn't understand was what @SquirrelJulietGarden said that the rate would reduce with time if the position was kept for long or did he give some wrong information?

Here:

With Perptual trading, when you have a position, the longer you let that position opens, the more interests you will have to pay for that exchange. Usually exchanges will have different shifts of funding rates within every 24 hours. It can be 3 or 4 shifts every day.

So even if your position at the end when you close it at profitable exit price, the longer you let that position opens, the less interest you will get at the end because the more in interest you will have to pay for exchange.

What you think the risk more dangerous, Future or Perpetual?

All are risky

Is ETF like BNB3X is included in derivative?

Yes, it's a derivative instrument because it's price "derived" from the spot price of the underlying asset

[SquirrelJulietGarden]

Isn't the funding rate dynamic in perpetual swaps? Like longs pay shorts and shorts pay longs depending on the market conditions and the position one has opened?

Funding rate is dynamic with bullish and bearish days.

I know how funding rate works, but what I didn't understand was what @SquirrelJulietGarden said that the rate would reduce with time if the position was kept for long or did he give some wrong information?

I typed it wrong.

Actually I mean a longer you let your position opens, a more interest you will have to pay for an exchange and therefore even if your position is at profit when you close it, you will have less profit at the end.

I should use interest and profit differently to avoid confusion.

[Oshosondy]

Actually I mean a longer you let your position opens, a more interest you will have to pay for an exchange and therefore even if your position is at profit when you close it, you will have less profit at the end.

It is now clear that funding rate could be $0, positive (which would be added to your trading fund), or negative (which would be deducted from your trading fund). Funding rate can not be used to determine that the longer the position opened, the higher the money a trader would pay. Which payment are you talking about? I hope you can differentiate between margin trading and derivative trading?

[adaseb]

Right now the funding fees are low so it doesn’t really matter. And the future months hardly have any premiums or discounts.

When it matters is during bull markets. When everyone is buying Bitcoin like crazy you can have 2-3% premiums on the monthlies and funding rates that are 0.05% every 8 hours. In the end it matters because it depends on when you exit your trade. If all you made is 5% profit but paid 10% in funding then you lost in fees more than your gains.

[febriyana]

They are both dangerous with higher leverage. The difference is that futures will close itself if the date set expires, but perpetual has no closing date.

Ok thanks for the explain.
For example if we doing futures, the date set expired is 1 month, is it can't closed until expired?
If we get liquidated, is it true all our money gone, nothing left?

[Oshosondy]

For example if we doing futures, the date set expired is 1 month, is it can't closed until expired?

I have not tried future contract before, I have have only preferred to go for perpetual contract that do not have the expiration date which is the difference.

But in accordance to what I have read about future contract, you can close the position opened at anytime before the expiration date, if not closed by you, it would close by itself after the expiration date.

If we get liquidated, is it true all our money gone, nothing left?

Yes, all the money would be gone (lost). That is the meaning of asset (or trading fund) liquidation.

[febriyana]

For example if we doing futures, the date set expired is 1 month, is it can't closed until expired?

I have not tried future contract before, I have have only preferred to go for perpetual contract that do not have the expiration date which is the difference.

But in accordance to what I have read about future contract, you can close the position opened at anytime before the expiration date, if not closed by you, it would close by itself after the expiration date.

If we get liquidated, is it true all our money gone, nothing left?

Yes, all the money would be gone (lost). That is the meaning of asset (or trading fund) liquidation.

All are risky

Yes, it's a derivative instrument because it's price "derived" from the spot price of the underlying asset

Ok. Thanks for the information.
That is seem very risky.
Very different if we compare with spot trading,
we only get unrealized loss if don't sell the coin and the coin still there.

[Bitcoin_Arena]

Actually I mean a longer you let your position opens, a more interest you will have to pay for an exchange and therefore even if your position is at profit when you close it, you will have less profit at the end.

I should use interest and profit differently to avoid confusion.

Perhaps you are talking about margin trading offered by Binance and a few other exchanges?
Well, I am not a fun of it and not so familiar with it.

But as for trading derivatives (perpetual swaps and futures). There's funding rate that keeps changing from positive to negative every 8 hours according to most derivative exchanges and the market conditions dictate it, not how long someone keeps their position open.

Also, the exchange does not benefit from the funding rate, as the traders pay themselves depending on what side of the funding rate they are. The exchange only benefits from trading fees, theoretically.

Ok. Thanks for the information.
That is seem very risky.
Very different if we compare with spot trading,
we only get unrealized loss if don't sell the coin and the coin still there.

Way riskier than even futures or perpetual swaps if you use the same leverage as that of leveraged tokens. It is the reason Binance has delisted leverage token twice now. A lot of people lost money.