Perpetual swaps

Perpetual Swaps: A Beginner's Guide

Perpetual swaps, also called perpetual futures, are a popular way to trade cryptocurrency without actually owning the underlying asset. They can seem complicated at first, but this guide will break down everything you need to know to get started. Think of them as a more advanced version of spot trading.

What are Perpetual Swaps?

Imagine you want to profit from Bitcoin (BTC) going up in price, but you don’t want to buy BTC directly. A perpetual swap lets you do that. It’s an agreement to buy or sell Bitcoin at a later date, *without* a settlement date. Unlike traditional futures contracts, perpetual swaps don’t expire. This is the key difference!

Here’s a simple analogy: Let’s say you and a friend agree that in one week, you’ll trade 1 BTC for $30,000. That’s a futures contract. If you both agree to keep renewing that agreement every week indefinitely, that's closer to a perpetual swap.

Perpetual swaps are traded using leverage, which we'll discuss later. You can trade on platforms like Register now , Start trading, Join BingX, Open account and BitMEX.

Key Terms

**Contract:** The agreement to buy or sell an asset at a specific price.
**Underlying Asset:** The cryptocurrency you're trading (e.g., Bitcoin, Ethereum).
**Long:** Betting the price will *increase*. You buy a contract hoping to sell it later at a higher price.
**Short:** Betting the price will *decrease*. You sell a contract hoping to buy it back later at a lower price.
**Leverage:** Amplifying your trading position. For example, 10x leverage means $100 of your money controls $1000 worth of Bitcoin. While it boosts potential profits, it also significantly increases potential losses. See Leverage Explained for more details.
**Margin:** The amount of money you need to have in your account to open and maintain a leveraged position.
**Funding Rate:** A periodic payment exchanged between longs and shorts. It keeps the perpetual swap price close to the spot price. If longs are dominant, they pay shorts, and vice versa.
**Liquidation Price:** The price at which your position will be automatically closed to prevent further losses. This happens when the market moves against you and your margin is depleted. See Risk Management to learn how to avoid liquidation.
**Mark Price:** The price used to calculate your Profit and Loss (P&L) and is different from the last traded price. It’s calculated based on the spot price and the funding rate.

How do Perpetual Swaps Work?

Let's walk through an example.

Suppose Bitcoin is trading at $30,000 on the spot market. You believe the price will rise. You decide to open a *long* position with 10x leverage, using $100 as your margin.

You are effectively controlling $1000 worth of Bitcoin.
If Bitcoin rises to $31,000, your profit is $100 (10% of $1000).
If Bitcoin falls to $29,000, your loss is $100 (10% of $1000).

Notice how your profit and loss are magnified by the leverage. This is why understanding risk management is crucial.

Perpetual Swaps vs. Futures Contracts

Here's a comparison:

Feature	Perpetual Swaps	Futures Contracts
Expiration Date	No expiration	Specific expiration date
Funding Rate	Yes, to keep price aligned with spot	No
Settlement	No physical delivery	Usually physical delivery or cash settlement
Complexity	Moderate	Can be complex, especially for beginners

Perpetual Swaps vs. Spot Trading

Feature	Perpetual Swaps	Spot Trading
Ownership	No ownership of the asset	You own the asset
Leverage	Available, amplifies gains/losses	Generally not available
Funding Rate	Present	Not present
Complexity	More complex	Simpler

How to Trade Perpetual Swaps: A Step-by-Step Guide

1. **Choose an Exchange:** Select a reputable cryptocurrency exchange like Register now. 2. **Create and Verify Your Account:** Follow the exchange’s registration process and complete the necessary verification steps (KYC – Know Your Customer). 3. **Deposit Funds:** Deposit cryptocurrency (like USDT or BTC) into your futures trading account. 4. **Select a Contract:** Choose the perpetual swap contract for the cryptocurrency you want to trade (e.g., BTCUSD). 5. **Choose Your Position:** Decide whether to go *long* (buy) or *short* (sell). 6. **Set Leverage:** Select your desired leverage level. **Be cautious with high leverage!** 7. **Set Your Position Size:** Determine how much margin you want to use. 8. **Place Your Order:** Execute your trade and monitor your position. 9. **Manage Your Risk:** Set stop-loss orders to limit potential losses and take profit orders to secure gains.

Risk Management

Perpetual swaps are risky, especially with leverage. Here are some essential risk management tips:

**Use Stop-Loss Orders:** Automatically close your position if the price moves against you.
**Don't Use Excessive Leverage:** Start with low leverage (e.g., 2x or 3x) until you gain experience.
**Understand Liquidation Price:** Be aware of the price at which your position will be liquidated.
**Manage Your Position Size:** Don't risk more than a small percentage of your capital on any single trade (e.g., 1-2%).
**Diversify Your Portfolio:** Don't put all your eggs in one basket. Consider trading different cryptocurrencies.
**Stay Informed:** Keep up-to-date with market news and analysis. Learn about technical analysis and fundamental analysis.

Advanced Strategies

Once you're comfortable with the basics, you can explore more advanced strategies:

**Hedging:** Using perpetual swaps to offset the risk of holding other cryptocurrency assets.
**Arbitrage:** Exploiting price differences between different exchanges.
**Trend Following:** Identifying and trading in the direction of the prevailing trend. See Trend Analysis.
**Mean Reversion:** Betting that prices will revert to their average level.
**Scaling in and out:** Gradually increasing or decreasing your position size.
**Volume Spread Analysis**: Understanding the relationship between price and volume. Volume Analysis

Resources for Further Learning

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⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️