Perpetual futures are a type of derivative contract that allows you to speculate on the future price of an asset without ever having to own it, and without a set expiration date. This makes them highly flexible for traders looking to profit from price movements in either direction.
How Perpetual Futures Work
Unlike traditional futures contracts that settle on a specific date, perpetual futures are designed to trade continuously. Their prices are kept in line with the underlying asset through a mechanism called the funding rate.
At regular intervals (e.g. every 4 hours), traders on the side of the trade that is more in demand pay a funding fee to the opposing side. For example:
- If the perpetual price is above the spot price, longs pay shorts.
- If the perpetual price is below the spot price, shorts pay longs.
This incentivises balance between long and short positions and helps keep the perpetual price aligned with the underlying market.
Leverage and Margin
Strike Finance allows you to use leverage when opening a position, meaning you can gain larger exposure than your initial deposit (collateral). However, using leverage increases your risk of liquidation if the market moves against your position.
There are two margin levels to be aware of:
- Initial Margin: The amount you must provide to open a position.
- Maintenance Margin: The minimum collateral required to keep the position open.
Key Benefits
- 24/7 Trading: Open or close positions at any time.
- Leverage: Amplify gains on smaller capital.
- Flexible Direction: Go long or short depending on market outlook.
Key Risks
- Liquidation: Your position may be forcibly closed if your collateral falls below the maintenance margin.
- High Volatility: Price swings can result in rapid gains or losses.
- Funding Payments: Depending on market conditions, you may need to pay fees to opposing traders.
Understanding these mechanics and risks before opening a position is essential. Strike Finance provides access to powerful trading tools, but the need for responsible use comes with that.
