The Good and the Bad of Perps, According to Crypto Traders
Perpetual futures, or perps, are derivatives contracts that allow traders to control a larger position than the money held in their account. Traders love perps for their deep liquidity, cheap trading fees, and brutal margin efficiency. However, there's a recurring cost fo…
Intelligence analysis by Llama
Perpetual futures, or perps, are a popular choice among traders due to their deep liquidity, cheap trading fees, and brutal margin efficiency. However, traders are concerned about the funding rate, a recurring cost for keeping positions open.
Perpetual futures, or perps, are a type of derivative contract that allows traders to control a larger position than the money held in their account. They're like a special tool that helps traders manage risk efficiently. However, there's a recurring cost for keeping positions open, called funding rates, which traders are concerned about.
Analysis
The Rise of Perpetual Futures
Perpetual futures, or perps, have become a staple in the cryptocurrency trading landscape. These derivatives contracts allow traders to control a much larger position than the money held in their account, making them an attractive option for those looking to manage risk efficiently. Lucas Krenn, a derivatives trader at market-making firm STS Digital, notes that perps are the plumbing underneath everything the firm does. "Outside bitcoin and ether, dated futures liquidity is thin to the point of being unusable," he said. "So perps are not one tool among several. For a crypto native firm, they are the tool."
The Benefits of Perps
So, what makes perps so appealing to traders? According to Kenneth Ong, an independent trader for six years, perps offer better fills, lower fees, and the ability to run both sides at once via hedge mode. In simple terms, the hedge mode allows the trader to hold longs (bullish bets) and shorts (bearish plays) on the same token at the same time in the same account. These are treated as separate positions, not netted against each other. That's a big advantage over a regulated venue like CME, which offers standard futures in which a single account is typically netted by default.
The Funding Rate
But trading fees aren't the only expense for traders. There's also a recurring cost for keeping positions open, called funding rates. Think of it as an interest charge that builds up the longer you hold, and the traders we spoke with are concerned about how much this could add up. Lucas Krenn notes that the funding rate is a key consideration for traders, as it can eat into their profits. "The funding rate is a recurring cost that can add up quickly," he said. "Traders need to be aware of this cost and factor it into their trading decisions."
The Future of Perps
So, what's the future of perps? Both Lucas Krenn and Kenneth Ong see the perpetual futures market continuing to grow and evolve. "Perps are not just for cryptocurrency traders," Krenn said. "They're a powerful tool for traders of all asset classes."
Conclusion
In conclusion, perpetual futures, or perps, are a crucial aspect of the cryptocurrency trading landscape. They offer traders deep liquidity, cheap trading fees, and brutal margin efficiency. However, traders need to be aware of the funding rate, a recurring cost for keeping positions open. As the perpetual futures market continues to grow and evolve, traders need to stay informed and adapt to the changing landscape.
Key points
- Perpetual futures, or perps, are derivatives contracts that allow traders to control a larger position than the money held in their account.
- Perps offer deep liquidity, cheap trading fees, and brutal margin efficiency.
- The funding rate, a recurring cost for keeping positions open, is a key consideration for traders.
- The perpetual futures market is expected to continue growing and evolving.
- More traders and investors are becoming aware of the benefits of perpetual futures.
The perpetual futures market is expected to continue growing and evolving, with more traders and investors becoming aware of its benefits. As the market matures, we can expect to see more sophisticated trading strategies and tools emerge.
The funding rate, a recurring cost for keeping positions open, could eat into traders' profits and make it more difficult for them to manage risk efficiently.
