Differences between perpetual contracts and traditional futures contracts.

1. What is a traditional futures contract?

A futures contract is the trading object or subject matter of futures trading.

It is a standardized contract formulated by the futures exchange, which stipulates that a certain quantity and quality of physical commodities or financial commodities will be delivered at a specific time and place in the future.

For example, the Chicago Board of Trade stipulates that the trading unit of a wheat futures contract is 5,000 bushels.

If a trader buys a wheat futures contract, it means that he needs to buy 5,000 bushels of physical wheat on the expiration date specified in the contract.

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2. What is a perpetual contract?

A perpetual contract is a digital currency derivative similar to a futures contract.

It is similar to a margin spot market, and its price is anchored to the spot market price of the underlying asset through the funding rate.

Compared with futures contracts, the biggest feature of perpetual contracts is that there is no delivery date or settlement date, and users can hold positions indefinitely.

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3. Differences between perpetual contracts and traditional futures contracts

1. The subject matter is different

Most of the traditional futures contracts use a certain physical commodity or financial asset as the underlying object, such as soybeans, oil, stocks, bonds, etc.

The subject matter of the perpetual contract is mainly virtual digital assets, such as BTC/USDT, ETH/USDT, etc.

2. Different trading hours

The trading time of traditional futures contracts is uniformly determined by the futures exchange, usually 9 hours a day, with delivery and settlement on a monthly, quarterly or annual basis.

The perpetual contract is traded 7*24 hours, and can be traded at any time without a delivery settlement date.

3. Different design mechanisms

Traditional futures contracts usually adopt a “loss allocation” mechanism.

If some users fail to close their positions in time due to violent market fluctuations, that is, the margin cannot cover the loss, all profitable users on the platform will share the losses of the users who have lost their positions.

The perpetual contract adopts the “automatic lightening” mechanism, which reduces market risk by reducing the position of the counterparty, and uses the insurance fund to compensate for the loss of the position, without the need for all users of the platform to share the loss.

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