Perpetual futures might sound mystical, but in reality, they are just another profit-making tool that can be used independently or alongside your regular margin or spot trading strategies. 

There are a few reasons why would one choose to give perpetual futures a try.

  • If you practice spot and margin trading and the market goes against you, perpetual futures can give you an extra hedge for risk-management purposes. 
  • They also allow traders to use higher leverage and go beyond their current balance.
  • Don’t own an asset, but it looks very promising at the moment? Well, perpetual futures can help you open short positions for it regardless.


We’ve come up with a comprehensive guide for anyone looking to brisk their trading routine with a new tool.

 

How to Start Trading?

Perpetual futures work for opening both long and short positions, and each of these processes has its own technicalities.

 

Long Positions

When a trader assumes the contract price is going to rise, they open long positions. They will profit off short-term fluctuations or long-term growth in the best-case scenario. Additionally, traders should keep in mind the Funding payment. The system lets users either receive or pay the Funding based on the nature of their positions and the state of the market.  

Also, it is only possible to have one long and one short position per contract. In case a trader has an open position and plans on adding another similar one, they will be merged.

When the trader decides to close their positions, they will be able to do so at the current market price. Alternatively, they can set the order’s limit in advance, and the contract will be closed automatically when the contract reaches the goal price. 

Traders are free to close their positions partially and lock the profit. For that, they need to add a new opposite-side order. 

 

Short Positions

Short positions serve the purpose of traders who predict that the contract price will fall soon. Whenever the price drops, traders can open a long position by closing the contract and take advantage of the difference. It also works for short-term and long-term strategies.

Just like with long positions, traders can partially close their positions and stay in control of the contract’s price. 

 

Changing Leverage

Traders can change the leverage by accessing the Add/Retrieve Margin pop-up that shows up when sending margin collateral for the contract they want to trade. 

If the position already exists, adjusting the leverage is also an option. Look for the Margin +/- symbol and use it to add or deduct the leverage of all open positions. Keep in mind that the exchange’s margin requirements will be reduced if you increase the leverage. At the same time, bigger leverage will impose more restrictions on the maximum limit. 

 

Additional Parameters

The unrealized profit and loss UrlPnL parameter indicates the trader’s profit or loss when they decided to close the position.

The liquidation Price Liq. Price parameter indicates the price of the position at which it will be automatically liquidated. If the trader uses high leverage, it becomes very sensitive to the market movements so that even small changes can activate a Margin Call.

Risk is another critical parameter; it gives the trader an idea of how risky his position is. 100% risk indicates that the position is about to be liquidated.

Finally, the Required Margin parameter indicates how much margin the trader needs to back the current contract open position. This value is not static and changes based on the asset’s relevant value and the contract’s margin balance. 

 

Dealing With Liquidation

In most cases, liquidation can be avoided if the trader effectively monitors their orders. For instance, when Mark price comes closer to Liq. Price or the Risk parameter is dangerously close to 100%, chances are the position is about to be liquidated.

Can you do anything to prevent this? Surely, there are some immediate actions you can take. First, you need to cancel your orders, as they will tie up the collateral. Secondly, you can partially close the position and add margin. Reducing leverage or setting a limit in advance can also be helpful.

Remember that smaller leverage is considered to be less risky. If you’re making your first steps in perpetual trading, small leverage and higher margin will help you safely explore available tools and options.

 

The Bottom Line

Along with providing new trading options, perpetual futures have their own pros and cons. It is essential to develop steady risk management strategies. 

Futures’ pros include flexibility of opening short and long positions, advanced risk adjustment methods, hedging options, and the possibility to collect Funding. However, traders need to mind that being linked to certain underlying assets futures poses risks of unpredictable market scenarios. Also, if you choose to go with the high leverage, you need to do so very carefully.

Like any other trading tool, futures have their stronger and weaker points. They can become a valuable addition to your current strategies when used wisely. You can learn more about futures on HitBTC’s support portal or via the how-to guide.

FAQ

What Are Perpetual Futures Contracts?

Perpetual futures work for opening both long and short positions. When a trader assumes the contract price is going to rise, they open long positions. They will profit off short-term fluctuations or long-term growth in the best-case scenario. Additionally, traders should keep in mind the Funding payment. Short positions serve the purpose of traders who predict that the contract price will fall soon. Whenever the price drops, traders can open a long position by closing the contract and take advantage of the difference. It also works for short-term and long-term strategies.

Why trade perpetual futures?

If you practice spot and margin trading and the market goes against you, perpetual futures can give you an extra hedge for risk-management purposes. They also allow traders to use higher leverage and go beyond their current balance. Don’t own an asset, but it looks very promising at the moment? Well, perpetual futures can help you open short positions for it regardless.