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Gate.io > Help Center > Futures > Perpetual Contract
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Understand Perpetual Contract
Updated at:1140 days 7 hours ago

1.What is Perpetual Contract

Gate.io Perpetual Contract is an innovative financial derivative in crypto space, which is similar to traditional futures contract but has no expiration and settlement. Traders only need to focus on the ups snd downs of price, making it an easy-to-use instrument. Moreover, it provides higher leverage than the traditional futures.

2.Perpetual Contract vs Futures Contract


3.How to trade with Gate.io Perpetual

(For your better understanding, let us assume that the spot price and the contract price are the same, and do not consider trading commissions and funding fees involved.)

① Scenario 1 Buy/Go Long

The current Bitcoin price is 5000 USD. Mr. Lee and Mr. Wang both are bullish on Bitcoin price. Mr. Lee buys 1 BTC in spot market. Mr. Wang uses 1 BTC as margin to buy 500,000 perpetual contracts (100 BTC equivalent) with 100x leverage. If the BTC price rises to 5500 USD, Mr. Lee will earn 500 USD, a 10% rate of return, while Mr. Wang will earn 10 BTC equivalent, a 1,000% rate of return. img

②Scenario 2 Sell/Go Short

The current BTC price is 5,000 USD. Mr. Lee and Mr. Wang both expect BTC price to go down later. So, Mr. Lee sells his 1 BTC to stop loss and Mr. Wang sells/goes shot of his 500,000 contracts (100 BTC equivalent). If the BTC price drops to 4,500 USD, Mr. Lee will protect himself from a 10% loss, while Mr. Wang will gain a 1,000% rate of return instead. img

③Risk of Perpetual Contract Trading

The BTC price is 5,000 USD currently. Mr. Lee and Mr. Wang expect BTC price to go up. Mr. Lee buys 1 BTC in spot market while Mr. Wang chooses to go long on 500,000 perpetual contracts (100 BTC equivalent) with a 100x leverage of 1 BTC as margin. Unfortunately, the BTC price does not go up but drops to 4,990 USD later. Mr. Lee loses 0.2% while Mr. Wang loses 20%. img

lf BTC price falls all the way to 4,975 USD. Mr. Lee would lose 0.5% while Mr. Wang would be left with only 0.5 BTC in his margin account (0.5% is the maintenance margin level). Mr. Wang would suffer forced liquidation and lose all his margin. img

In the above scenarios, Mr. Wang gains multiplied earnings using Gate.io perpetual trading than Mr. Lee with the same amount of investment, provided that they make correct predictions about market movement. This method brings him returns even in a falling market. However, if the market moves against their expectations, Mr. Wang would suffer amplified losses.

Note: The above scenarios are simplified examples for your better understanding of perpetual contract. For more information about funding fee, auto-deleveraging, mark price, etc., please visit our website for details.

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