Perpetual Futures vs. Quarterly Futures
Perpetual Futures vs. Quarterly Futures: A Beginner's Guide
Welcome to the world of cryptocurrency futures trading! It can seem complicated at first, but this guide will break down the key differences between two popular types of futures contracts: Perpetual Futures and Quarterly Futures. This knowledge is essential before you start trading on platforms like Register now or Start trading.
What are Futures Contracts?
Before diving into the specifics, let's understand what a futures contract is. A futures contract is an agreement to buy or sell an asset (like Bitcoin or Ethereum) at a predetermined price on a specified date in the future. Instead of owning the actual cryptocurrency right now, you're trading a contract *about* its future price. This allows you to speculate on price movements without actually holding the asset. You can learn more about Derivatives and how they work.
Quarterly Futures: A Fixed Timeframe
Quarterly Futures, as the name suggests, have a fixed expiration date, typically every three months (hence, quarterly). Think of it like a lease agreement – you agree to the terms for a set period.
- Expiration Date: These contracts expire on specific dates – usually the last day of March, June, September, and December.
- Settlement: On the expiration date, the contract is settled. This means you either receive or deliver the underlying cryptocurrency at the agreed-upon price. In practice, most traders don't hold the contract until settlement; they close their position before the expiration date.
- Funding Rates: Generally, quarterly futures have less frequent Funding Rates compared to perpetual futures. Funding rates are periodic payments exchanged between buyers and sellers, depending on whether the futures price is above or below the spot price.
- Example: You buy a Bitcoin Quarterly Futures contract expiring in December at a price of $40,000. If the price of Bitcoin rises to $45,000 by December, you profit from the $5,000 difference (minus fees). If the price falls, you incur a loss.
Perpetual Futures: No Expiration Date
Perpetual Futures are different. They *don't* have an expiration date. You can hold onto a perpetual futures contract indefinitely. This is the biggest difference from quarterly futures.
- No Expiration: You don't need to worry about a settlement date.
- Funding Rates: To keep the perpetual contract price aligned with the underlying Spot Price of the cryptocurrency, perpetual futures use a mechanism called "funding rates". These are periodic payments exchanged between traders. If the perpetual contract price is higher than the spot price, longs (those betting on the price going up) pay shorts (those betting on the price going down). If the perpetual contract price is lower than the spot price, shorts pay longs. This incentivizes the contract price to stay close to the spot price. More on Funding Rate can be found here.
- Example: You buy a Bitcoin Perpetual Futures contract. As long as you maintain sufficient Margin, you can hold the position open, profiting or losing based on price movements. Funding rates will be applied periodically.
Key Differences Summarized
Here's a table summarizing the main differences:
| Feature | Quarterly Futures | Perpetual Futures |
|---|---|---|
| Expiration Date | Fixed, every three months | No expiration date |
| Settlement | Contract settled on expiration date | No settlement date |
| Funding Rates | Less frequent | Frequent, to maintain price alignment |
| Contract Closure | Must be closed before expiration to avoid settlement | Can be held indefinitely |
Which One Should You Choose?
The best choice depends on your trading strategy and risk tolerance:
- **Quarterly Futures are good for:** Traders who have a specific price target and timeframe in mind. They also benefit from potentially lower funding rate costs. If you believe Bitcoin will significantly increase in price over the next three months, a quarterly contract might be suitable. You can find strategies for Trend Trading that may work well with quarterly futures.
- **Perpetual Futures are good for:** Traders who want more flexibility and don't want to worry about expiration dates. They are popular for short-term trading and Day Trading. If you want to quickly capitalize on small price swings, perpetual futures might be a better fit. You can also explore Arbitrage strategies.
Practical Steps to Get Started
1. **Choose an Exchange:** Select a reputable cryptocurrency exchange that offers futures trading. Join BingX and Open account are good options. 2. **Fund Your Account:** Deposit cryptocurrency (usually USDT or BTC) into your futures trading account. 3. **Understand Margin:** Futures trading uses leverage. You need to understand how Margin works and the risks involved. 4. **Start Small:** Begin with a small position size to get comfortable with the platform and the dynamics of futures trading. 5. **Set Risk Management Tools:** Use Stop-Loss Orders and Take-Profit Orders to manage your risk. 6. **Practice with Paper Trading:** Many exchanges offer paper trading accounts where you can practice without risking real money.
Risk Management is Crucial
Futures trading is inherently risky due to the use of leverage. Always use risk management tools and never invest more than you can afford to lose. Learn about Position Sizing and how to calculate your risk exposure. Consider reading about Technical Analysis to help you make informed trading decisions. Don't forget to analyze the Trading Volume to determine market interest.
Further Learning
- Leverage
- Short Selling
- Long Position
- Order Types
- Liquidation
- Hedging
- Swing Trading
- Scalping
- Chart Patterns
- Moving Averages
- Relative Strength Index (RSI)
- Bollinger Bands
- Fibonacci Retracements
- Candlestick Patterns
- BitMEX
Recommended Crypto Exchanges
| Exchange | Features | Sign Up |
|---|---|---|
| Binance | Largest exchange, 500+ coins | Sign Up - Register Now - CashBack 10% SPOT and Futures |
| BingX Futures | Copy trading | Join BingX - A lot of bonuses for registration on this exchange |
Start Trading Now
- Register on Binance (Recommended for beginners)
- Try Bybit (For futures trading)
Learn More
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⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️