Futures and Perpetual swaps are types of cryptocurrency derivatives that are gaining popularity among traders, top exchange sites like OKEx make them available to enable customers to have wider trading options.
These two are closely related but there are two distinct difference between them, and that is
1) Perpetual swaps having no settlement/expiry dates.
2) Funding rates and fees in Perpetual swaps are structured differently.
Futures:
When trading futures, traders are actually trading contracts that represent the value of a specific cryptocurrency. The contract is owned but not the underlying cryptocurrency, which is to buy or sell a specific cryptocurrency at a future date.
OKEx futures contract is a derivative launched by OKEx to trade contracts of digital assets such as BTC and ETH. Each contract represents USD100 of BTC, or USD10 of other digital assets (LTC, ETH etc.). Investors may open long to profit from the increase of a digital asset's price, or open short to profit from the decline of a digital asset's price. The available leverages for futures contracts are 0.01-100.
OKEx futures contracts features:
1) settled by BTC
2) contract value calculated in USD equivalent
3) manipulation proof system.
Perpetual swaps:
They work like futures contracts, where they allow traders to take long or short positions on an underlying asset. Like futures, swaps also give traders additional flexibility, such as the ability to use leverage and have contracts settled without ever having to actually own or custody the underlying asset.
One feature worth discussing is its funding fees because the fees are essential for keeping perpetual swaps prices balanced. Futures' prices automatically converge with the underlying spot price as the expiry nears, and this is based on the fact that futures have an expiry date set in advance.
Since perpetual swaps do not expire, funding fees are needed to stop it from diverging significantly from the underlying spot price.
Funding rate and fees
Funding fees act as counter-balances and are based on the funding rate, calculated by comparing the price difference between a perpetual swap contract and the spot price of the asset that the contract tracks.
How it works: funding rate becomes positive if a perpetual swap contract is trading above the underlying spot price, this means the long position holders have to pay a funding fee to the short position holders for as long as they keep their positions open.
And the funding rate becomes negative when the swap is priced lower than the underlying spot price, requiring short position holders to pay a fee to the long position holders.
This mechanism is needed to create incentive for traders to go against the trend and open positions countering a perpetual swap's trajectory.
OKEx, being a world-leading crypto exchange, offers some of the most liquid derivatives products in the market, including perpetual swaps.
Features of perpetual swaps on OKEx:
- OKEx offers a variety of perpetual swaps for trading, including BTC, ETH, LTC and more.
- OKEx users can also use up to 125x leverage when trading swaps.
- Funding fees for OKEx swaps are applicable every eight hours and are exchanged between traders holding long and short positions.
- With the introduction of the Unified Account feature on OKEx, real-time settlement is being rolled out for all swaps, futures and options.
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