Perpetual Futures Basics

• What is a Perpetual Future?

  • A Perpetual Futures contract is similar to a traditional futures contract that never expires. The contract approximates an auto-rolling future using a periodic (e.g. daily) settlement in which the buyer pays the seller an amount of cash based on the difference between the contract’s mark price and the underlying benchmark price.

• When does a Perpetual Future expire?

  • These instruments do not have an expiration date, allowing traders to hold positions indefinitely. Traders may hold their positions as long as margin levels are maintained, with regular profit and loss realisation based on market conditions.

• How does a Perpetual Future track the underlying index?

  • Perpetual Futures utilise a funding rate mechanism to ensure the contract tracks the underlying index. For further information, see the settlement and funding section.

• Are Perpetual Futures “crypto”?

  • No, while Perpetual Futures are popular in crypto markets, they can track underlying assets that are either digital or traditional. Architect Derivatives Exchange’s Perpetual Futures do not have crypto asset underlyings.

• How does trading a Perpetual Future work?

  • Perpetual Futures trade on an order book based on price-time priority.

• What are some advantages of Perpetual Futures?

  • The perpetual futures contract is an attractive option for many traders. Because Perpetual Futures never expire, some of the disadvantages of traditional futures are avoided. These include being able to hold positions indefinitely without worrying about contract expiry, exclusively cash settlement (no physical delivery), periodic funding payments to keep prices in line, and no need to incur the costs and difficulty around roll-over. Additionally, similar to many other traditional futures contracts, Perpetual Futures also offer around-the-clock trading hours, the ability to efficiently establish short positions, and capital efficiency with attractive leverage and margin requirements.

• Where can I find the contract specifications for each Perpetual Futures contract?

  • The specifications for each product can be found on each Perpetual Future’s page, including details such as the funding rate specification, the underlying index, and the Mark Price calculation.

• What is the profit and loss (P&L) for trading a Perpetual Futures contract?

  • The total profit and loss will be the combination of the trading P&L (formed by the raw entry and exit prices from the contract) and the sum of all funding rate payments paid or received while the contract is held.

• Who are typical users of Perpetual Futures contracts?

  • Typical users of Perpetual Futures include:

    • Speculators: Speculators use Perpetual Futures to express price opinions and profit or lose when prices fluctuate.

    • Hedgers: Hedgers use Perpetual Futures to manage risk by offsetting or managing exposures in order to reduce potential losses.

    • Market-Makers & Arbitrageurs: Market-Makers and Arbitrageurs use Perpetual Futures to capture short-term inefficiencies in the market. For example, if a Perpetual Future is trading above the Underlying Index, they can sell the Perpetual Future and buy the Underlying asset in order to collect the Funding Rate.