How do perpetual futures and futures contracts work in the context of digital currencies?

1 answers

• Francis ToftMar 12, 2024 · 2 years ago
  Perpetual futures and futures contracts in the context of digital currencies work by allowing traders to speculate on the future price movements of digital currencies without actually owning the underlying asset. These contracts are essentially agreements between two parties to buy or sell a specific amount of a digital currency at a predetermined price and date in the future. Perpetual futures contracts are similar to traditional futures contracts, but they do not have an expiration date. This means that traders can hold their positions indefinitely, as long as they have enough margin to cover their positions. Futures contracts, on the other hand, have a specific expiration date, after which the contract is settled. When a trader enters into a futures contract, they are essentially betting on the future price of the digital currency. If the price of the digital currency at the time of settlement is higher than the agreed-upon price, the trader profits. If the price is lower, the trader incurs a loss. Perpetual futures and futures contracts are commonly used by traders to speculate on the future price movements of digital currencies and to hedge their positions in the market.
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