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What Is A Perpetual Futures Contract? 

What Is A Perpetual Futures Contract

A perpetual futures contract is an agreement to buy or sell an asset at an unspecified time in the future. All perpetual contracts are cash-settled. The distinguishing characteristic of a perpetual contract is the lack of an expiration date. This is what separates it from a standard futures contract.

Many financial experts agree that the greatest disadvantage of a standard futures contract is that speculators are constantly required to “roll” the contract into the next delivery month prior to expiration. This process creates a great deal of lost profit potential and inefficiencies. Perpetual futures contracts solve this problem.

Cryptocurrency exchanges have heavily embraced the use of perpetual contracts because they are much more efficient than a standard contract and traders overwhelmingly prefer perpetual contracts. If perpetual contracts are so much better than standard futures contracts why don’t the major commodity exchanges switch to perpetuals?

Perpetual vs Standard Contracts

Because the entire commodity futures industry uses an outdated model that relies on commodity brokers to serve as intermediaries between the buyer and seller. The broker collects a commission each time the customer rolls a contract into the next delivery month. A perpetual contract would majorly disrupt the brokerage industry. This explains why perpetual contracts have not been adopted by the commodity futures industry.

Brief Summary of a Perpetual Futures Contract

  • An agreement to buy or sell an asset at an unspecified time in the future.
  • All perpetual contracts are cash-settled.
  • The distinguishing characteristic of a perpetual contract is the lack of an expiration date.
  • The lack of an expiration date is what separates it from a standard futures contract.
  • Cryptocurrency exchanges have heavily embraced the use of perpetual contracts.
  • Perpetual contracts are much more efficient than a standard contract.
  • Traders overwhelmingly prefer perpetual contracts.
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