What are Standard Futures?

Standard futures are financial contracts that obligate the buyer to purchase or the seller to sell a specified asset at a predetermined future date and price. These contracts are standardized in terms of contract size, expiration date, and other essential parameters set by the exchange where they are traded. 

Standard futures contracts often involve commodities, financial instruments, or indices, providing investors with a tool to hedge against price fluctuations or capitalize on market movements.

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What are Perpetual Futures?

Perpetual futures, on the other hand, represent a relatively new and innovative addition to the world of derivatives. 

Also known as perpetual swaps, these contracts share similarities with standard futures but lack a fixed expiration date. Instead of having a predefined end date, perpetual futures contracts continue indefinitely until one of the parties decides to close their position. 

This perpetual nature eliminates the need for regular rollovers, providing traders with a seamless and continuous trading experience.

Similarities of Standard Futures and Perpetual Futures

1. Leveraged Trading

Both standard and perpetual futures allow traders to amplify their market exposure by using leverage. This means traders can control a more prominent position size with a relatively minor amount of capital.

2. Risk Management

Both types of futures contracts serve as tools for risk management, allowing market participants to hedge against adverse price movements and protect their portfolios.

3. Price Discovery

Standard and perpetual futures contribute to price discovery in the market by reflecting the collective sentiment of traders and investors. They provide valuable insights into future price expectations.

4. Market Liquidity

Both standard and perpetual futures contracts contribute to market liquidity by attracting a wide range of participants, including institutional investors, speculators, and hedgers.

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Differences between Standard Futures and Perpetual Futures

1. Expiration Date

The most apparent difference lies in standard futures contracts' expiration date and the perpetual futures' perpetual nature. Standard futures have a fixed maturity date, whereas perpetual futures continue indefinitely.

2. Funding Mechanism

Perpetual futures often involve a funding mechanism to ensure the contract's price aligns with the underlying asset's market price. This funding occurs regularly and aims to prevent price deviations between the futures contract and the spot market.

3. Costs and Fees

Traders in perpetual futures may encounter funding costs due to the continuous nature of the contracts. On the other hand, standard futures involve costs associated with rolling over positions as contracts expire.

4. Flexibility and Accessibility

Perpetual futures offer greater flexibility and accessibility for traders due to their continuous trading nature, enabling participants to enter or exit positions at any time without the constraints of expiration dates.

Pros of Standard Futures and Perpetual Futures

Some of the pros of standard and perpetual futures are:

• They are a great way to earn additional income with crypto past trading and investing.
• Many different types of crypto platforms offer these trading options, including Cryptology exchange.
• Crypto prices change frequently however trading contracts allows you to get in at a specific price to avoid this volatility.

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Cons of Standard Futures and Perpetual Futures

There are of course cons to consider when trading these types of futures contracts. The most notable ones are:

• You need a level of knowledge to trade these properly and so you don’t lose your crypto through wrong doing.
• Asset prices can decline rapidly when expiration comes close to standard futures, therefore making perpetual the better choice.
• Some futures platforms may have risks associated with them in terms of security infrastructure. Therefore it’s important to research which platform is best for you

The Future(s) of Crypto

In conclusion, understanding the distinctions between standard futures and perpetual futures is crucial for traders and investors navigating the blockchain. 

While standard futures provide a more traditional and structured approach, perpetual futures introduce innovation by offering continuous trading opportunities without the constraints of fixed expiration dates. 

To learn more about crypto and blockchain technology visit the Cryptology Academy today.

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