The cryptocurrency market has gone through a phenomenal growth within recent years. The cryptocurrency markets have given rise to various financial instruments that allow traders to gamble on price changes and it may reasonably enhance returns.
Perpetual futures, or “perp crypto” is one of the instruments. Crypto exchange traders have taken to these derivatives where they can become exposed to a commodity like Learn more about them and the role they play in the market interestingly, without having to own the asset, like Bitcoin and Ethereum.
Nevertheless, contrary to the futures contracts, which are traded in centralized financial markets, perpetual futures lack any expiration date, as long as traders remain at sufficient margins, they can hold open positions.
This guide discusses the concept of perp crypto, how perpetual futures trading is and the main aspects every novice needs to understand before starting.
What Is Perp Crypto?
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Perp crypto is the name of the perpetual futures contract which is a type of the cryptocurrency market derivative that permits trades to speculate on crypto assets without holding them. As discussed, with perp crypto, there is no expiry system or settlement day so you can keep positions as long as you maintain the stipulated margin.
In perpetual contract, you are really betting whether price or value of a crypto-coin like Bitcoin will increase or decrease. As long as you think the value of Bitcoin will increase, then you long and vice versa.
The leverage is one of the important characteristics of perp crypto, and it makes it possible to manage bigger positions using less capital.
Leverage and Margin in Perp Trading
Perp crypto have one major characteristic, which is the option to leverage. Leverage will enable you to be in trades worth more money than the money in your trading account. Leverage is however a two-sided sword; once the leverage is high then equity can realize higher gains but it can also lead to greater losses.
§ What Is Leverage?
Leverage may be perceived as a loan that is provided by the trading site or investment bank. It enables traders to trade larger stakes in the market and it is indicated as a ratio i.e. 5, 10 and even 100 times. As an example to illustrate the concept of leverage, assuming you have 100 dollars in your account, and the platform has a 10 USB, you are able to open up a trade worth 1000 dollars.
§ What Is Margin?
The margin is the smallest cash you are required to keep in your account to be able to sustain a leveraged position in the market. In perp crypto trading, two types of margin exist, including initial margin and maintenance margin.
You can also set the exchange platform to close the trades automatically if the margin balance drops below the maintenance level to avoid further losses.
Perp Crypto vs. Spot Trading: What’s the Difference?
This is one of the widely used questions that new investors making entry into the cryptocurrency market usually ask. Various exchange platforms, including trading aggregators such as Flipper, offer both perpetuals and spot trading services.
It is essential to understand the distinction between perpetual futures (perp) and spot trading to the person joining the crypto market. Although both of them provide an opportunity to earn money in the crypto market, they are very dissimilar in their functioning.
§ Spot Trading
Buying and selling crypto coins is the easiest through spot trading. By purchasing both Bitcoin and Ethereum in the spot market, you have the asset and the commodity is sent into your wallet.
The participants in the spot market make gains when the value of the cryptocurrency increases. When it goes down, they either HODL and wait when it goes up or sell it to profit at a loss. Spot trading does not involve margin, leverage and hence less risk is involved.
§ Perp Trading
The emphasis of perp trading is more on making the price of a cryptocurrency followed. Perp crypto traders do not hold the crypto coins, but, they make a bet about whether the price will increase or decrease. A perpetual futures position is one that opens with reference to the price of Ethereum in a derivatives exchange platform.
These contracts are not expired which means that you can last the position as long as you wish. The only condition is that you should not to lose the necessary margin. As discussed, through perp crypto trading, leverage and margin are available to you to trade bigger positions with a small investment.
Summing up
Perp crypto trading provides a new trading opportunity to traders willing to trade cryptocurrencies through speculation. But it also has its likelihood of risks and when practising leveraging and margin in perp trading, you must take caution.
