How do perpetual swaps work in the context of digital currencies?

1 answers

• Saurabh UpadhyayOct 05, 2023 · 3 years ago
  Perpetual swaps work by using a funding mechanism to keep the price of the contract in line with the underlying digital currency. If the price of the contract deviates from the index price, a funding rate is applied to adjust the contract's value. This funding rate is exchanged between long and short positions and is designed to incentivize traders to keep the contract's price in line with the index price. This mechanism helps to prevent large price discrepancies between the perpetual swap and the underlying digital currency. It's worth noting that different exchanges may have slightly different mechanisms for perpetual swaps, so it's important to familiarize yourself with the specific rules and features of the exchange you are trading on.
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