Get rich overnight or restart with one click! "Perpetual contracts" are taking the crypto world by storm.
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In the cryptocurrency market, known for its dramatic ups and downs, a derivative called “perpetual contracts” is rapidly taking center stage.
According to Wallstreetcn, on Monday the cryptocurrency market experienced a massive liquidation, with over $1.5 billion in long positions forcefully closed out, triggering the most severe flash crash in nearly a month. Although Bitcoin’s price rebounded yesterday, mainstream coins like Ethereum remained consolidating at low levels, highlighting the huge impact of high-leverage trading on market stability.
（Bitcoin rebounded to around $114,000 yesterday）
Amidst sharp volatility, the “perpetual contract”—originally a speculative tool popular mainly outside the US—is rapidly entering regulated US markets.
Perpetual contracts are a special type of financial derivative whose core feature is that they have no expiration date or strike price; traders can hold positions indefinitely. Profits and losses depend entirely on the price changes of assets like Bitcoin, similar to an options contract that can be automatically rolled over.
Mainstream cryptocurrency exchange Coinbase introduced perpetual contract products for its US retail customers this summer. Meanwhile, Cboe Global Markets in Chicago also plans to launch such contracts in November, marking the formal entry of mainstream Wall Street institutions into this high-risk game.
The Attraction of “Perpetual Contracts”
The most attractive feature of “perpetual contracts” is their extremely high leverage.
For example, a trader can use $500 in principal, apply 10x leverage, and open a $5,000 long position in Bitcoin. If Bitcoin’s price rises 10%, the initial investment doubles—earning $500.
However, risk and return are perfectly balanced; if Bitcoin’s price drops 10%, the $500 principal will be completely liquidated—that is, “one-click restart.”
To keep the contract price anchored to the spot price, perpetual contracts introduce a ‘funding rate’ mechanism.
Typically, when the contract price is higher than the spot price, long-position traders have to periodically pay the funding rate to short sellers. This fee eats into long traders’ profits, while becoming an extra income for shorts.
The popularity of perpetual contracts has exploded in the past year.
According to Adam Morgan McCarthy, head of research at analytics firm Kaiko, perpetual contracts now account for around 68% of Bitcoin trading volume. Amid a bull market with Bitcoin prices rising over 70% in the last year, traders seeking quick returns have been flocking in.
A New Track Where Brokers Compete
With the boom in perpetual contracts, mainstream trading platforms are accelerating their introduction into core markets.
Coinbase has not only opened the product to US retail customers; its head of trading, Scott Shapiro, stated:
We don’t intend to keep 10x leverage as a permanent limit; we hope to keep pushing that boundary.
Other institutions are quickly following suit:
Broker Robinhood has begun offering related services to European retail tradersCrypto company Gemini even offers perpetual contracts with up to 100x leverage.According to Cboe global derivatives head Catherine Clay at an event, the exchange plans to officially launch perpetual contracts in November.
For platforms offering these trades, this is undoubtedly a highly lucrative business.
Take Robinhood as an example. Its second-quarter financial report shows that cryptocurrency and options trading contributed nearly 80% of trading revenue, while traditional stock trading accounted for only 12%. The trading boom has also helped its share price soar more than 200% this year, and it successfully joined the S&P 500 index this month.
As with many speculative activities, the house may be the true winner in this game.
Risk Warning and DisclaimerThe market involves risk and investment requires caution. This article does not constitute personal investment advice, nor does it consider the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their specific circumstances. Investment is at your own risk. ```