U.S. Perpetual Futures 101

What are U.S. Perpetual Futures?

U.S. perpetual futures are a new type of futures contract provided by Coinbase Derivatives.

They are long-term futures contracts (with a five-year maturity) that closely track the spot price of the underlying asset.

These contracts are traded 24/7 and aim to bring the core advantages of international perpetual futures into the U.S. regulatory environment.

Background

International perpetual futures allow traders to speculate on asset prices without an expiration date, while closely tracking the asset\'s spot price.

They are largely unavailable in the United States due to regulatory restrictions, but are widely traded internationally.

Perpetual futures account for more than 90% of global crypto derivatives trading volume. Major exchanges operating outside the United States have been reporting daily trading volume of more than $50 billion in perpetual futures.

There is strong demand for this product in the United States. Some U.S. traders obtain perpetual futures through offshore exchanges, an approach that introduces regulation, custody and counterparty risk.

U.S. perpetual futures eliminate the need for offshore workaround, providing traders with a domestic, regulated alternative with the same effect.

How do perpetual futures work in the United States?

U.S. perpetual futures are designed as long-term futures contracts (with a 5-year maturity), traded 24/7.

These contracts use a funding rate mechanism to align futures prices closely with the underlying spot market:

1. Funds are accumulated every hour and settled twice a day during the specified cash adjustment period.

2. During each settlement period, accrued funds will be aggregated and credited or debited to the trader\'s account.

3. These mechanisms take advantage of the tax treatment of leveraged futures to achieve a spot-like trading experience.

4. U.S. perpetual futures have a fixed contract size. For example, each nanobitcoin perpetual futures contract represents 1/100 of Bitcoin.

5. This is different from international perpetual futures, in which investors can open positions at any amount above the minimum-there is no fixed contract size.

6. U.S. perpetual futures also provide intraday leverage of up to 10 times, allowing traders to expand their risk exposure with limited funds.

How are these contracts different from traditional futures contracts?

The design of U.S. perpetual futures is similar to global perpetual futures.

In traditional futures markets, contracts expire monthly or quarterly. Traders must close contracts before they expire or transfer them into new contracts.

This creates operational complexity, especially for long-term strategies. U.S. perpetual futures have a five-year maturity, making it easier for traders to hold positions without rolling them over.

U.S. perpetual futures also provide traders with a 24/7 method to track price movements through a funding rate mechanism that closely reflects spot prices.

Forward-looking prices for traditional futures contracts may deviate from spot prices.

By combining long-term contracts with financing mechanisms, U.S. perpetual futures provide a \"spot-like\" trading experience while retaining all the functions traders expect from derivatives, such as leverage and risk management.

Trading Example

Investors place long positions in 1nm Bitcoin Perpetual Futures (BIP) at 1:30 pm ET at US$100,000. Traders hold contracts during the funding period at 2:00 p.m. ET and sell them at $101,000 at 2:30 p.m. ET.

During the 2:00 p.m. EST funding session, the funding rate for that hour is +0.010%, and the marked price for that hour is US$100,000. A fund debit of US$1.00 is accrued during this hour (1 contract × 0.01 contract size × US$100,000 marked price × 0.010% fund rate).

At the end of the day, the final funds debit or credit is calculated using the latest marked price and all accrued funds payments are processed.

Investors can now trade our U.S. perpetual futures on our partner platform.

Review

Key Terms

U.S. Sustainable Future

Coinbase Derivatives provides a long-term futures contract that closely tracks the spot price of the underlying asset.

Eternal Future

An internationally tradable futures contract that has no fixed expiration date and closely tracks the spot price of the underlying asset.

Funding Rate

Regular payments between long and short positions are designed to keep futures prices in line with the spot market.

Leverage

The ability to control large positions with relatively small capital (margin).

Margin

Deposits required to open and maintain positions in futures contracts.

Marker price

represents the reference price for calculating the estimated fair value of futures contracts.