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FollowingPerpetual contract is a term that is very easy to see when we trade virtual currency. It is different from the most basic currency transactions and contract transactions. Perpetual contracts have no fixed expiration period, allowing users to reach a more extensive agreement, greatly enhancing the flexibility of the agreement, allowing buyers and sellers to choose different strategies, which is very flexible. Today, Xiaobian will give you a detailed introduction to what perpetual contracts (derivatives) are.
What is a perpetual contract (derivative)?
Spot trading involves the direct purchase and holding of cryptocurrencies such as Bitcoin, while another trading asset allows you to profit from price fluctuations without having to own the actual cryptocurrency. These assets essentially allow you to make bets on whether prices will rise (\"long\") or fall (\"short\").
When you trade perpetual contracts on JuCoin, you are actually reaching an agreement with a counterparty that takes the opposite position. If you open a long position and bet that the price of Bitcoin will rise, someone will short and bet that the price will fall. When either party closes their positions, they either pay the price difference as a loss or gain the price difference as a profit.
For example: If you open a long contract position in BTCUSTODT worth 100,000 USDT when the Bitcoin price is 100,000 USDT, this is equivalent to owning a Bitcoin and betting that the price will rise. If the Bitcoin price rises to 110,000 USDT and you choose to close your position, you will earn a profit of 10,000 USDT. Conversely, a person who shorts in this situation will lose 10,000 USDT.
What makes perpetual contracts particularly attractive is their leverage. JuCoin allows you to control larger position sizes with your initial investment.
For example: To open the same 100,000 USDT position, you can only use 10,000 USDT as margin and use 10 times leverage. This means that if Bitcoin rises to 110,000 USDT, even though you only invest 10,000 USDT initially, you can still make a profit of 10,000 USDT.
However, when holding spot bitcoin, the price needs to fall to zero before you lose all your money. When using 10 times leverage, the price will be forced to close the position if it moves in the reverse by a certain percentage. The higher the leverage multiple, the smaller the reverse price change required to trigger a tightening.
Since perpetual contracts can be held indefinitely, they use a mechanism called a funding rate to keep their prices consistent with the actual cryptocurrency price. Funding rates can be understood as a balanced system. When most traders bet that prices will go up (go long), they need to pay a small fee to those betting that prices will go down (go short), and vice versa. This helps keep perpetual contract prices closely linked to actual cryptocurrency prices.
