As cryptocurrency trading becomes increasingly popular, it is crucial for investors to make informed decisions in the market by understanding the different types of contracts. Seasonal contracts and perpetual contracts are such contracts; they are both derivatives. Seasonal contracts are those that have an expiration date, usually divided by quarters or months. Perpetual contracts are those without expiration dates, allowing continuous trading without forced liquidation. However, for newcomers, it is still not easy to understand the differences between seasonal contracts and perpetual contracts. In simple terms, the differences are the deadline, roll-over, funding rates, margin, and trading strategies. Below, I will explain in detail.
What are the differences between seasonal contracts and perpetual contracts?
The main differences between seasonal contracts and perpetual contracts are the deadline, roll-over, funding rates, margin, and trading strategies, etc. The following is a specific analysis:
1. Deadline
Seasonal contracts have a deadline by which trades must be completed. This means that any trades conducted after the deadline will only be processed in the next quarter.
There is no deadline for trading perpetual contracts, allowing traders to trade at any time of the year.
2. Roll-over
Seasonal contract traders must go through an accurate roll-over process to move their positions from one quarter to another. This requires them to transfer their positions to the next quarter.
Perpetual contracts do not require any roll-over process, as all trades remain open until they are closed or liquidated due to margin calls or liquidation fees.
3. Funding Rates
Seasonal contracts typically do not include any type of funding fees, as they are designed to be held until the expiration date, at which point they are settled.
Perpetual contracts do indeed include funding fees, charged every 8 or 16 hours according to the contract specifications. This fee helps incentivize liquidity providers by offsetting some of the risk exposure.
4. BTC vs USDT Margin
Both seasonal contracts and perpetual contracts can use Bitcoin (BTC) or Tether (USDT) as margin. Although BTC and USDT margins provide similar levels of liquidity and exposure, there are some important differences between them; BTC margin offers more potential profit due to its higher volatility, while USDT margin provides greater stability due to its lower volatility, but potential profits are also lower compared to BTC margin trading.
5. Trading strategies and uses
Seasonal contracts are suitable for short-term trading or risk hedging, as they have fixed expiration dates that require timely management of roll-overs or closures.
Perpetual contracts are more suitable for long-term holding or hedging, as they have no expiration date, allowing continuous trading while maintaining price stability through funding rate mechanisms.
Which is better, seasonal contracts or perpetual contracts?
Choosing between seasonal contracts and perpetual contracts depends on factors such as your trading strategy, risk preference, and market observation capabilities. If you lean towards short-term trading or risk hedging, seasonal contracts may be more suitable for you. Since seasonal contracts have fixed expiration dates, they are suitable for short-term trading strategies. If you lean towards long-term holding or need to hedge, perpetual contracts may be more suitable. Perpetual contracts have no expiration date and can be traded continuously, making them suitable for long-term investment or risk hedging.
The price of seasonal contracts is often influenced by the expiration time, and significant price fluctuations may occur before expiration. If you can grasp such market fluctuations and roll over or close positions at the right time, seasonal contracts may be suitable for you. Perpetual contracts are not limited by expiration dates, making them more flexible and suitable for continuous trading or long-term holding.
Seasonal contracts require handling roll-overs or closures upon expiration, and improper handling may lead to losses. Therefore, more cautious risk management and trading planning are required. Perpetual contracts maintain price stability through funding rate mechanisms, but it is also important to pay attention to the impact of funding rate changes on positions, making reasonable stop-loss and risk control essential.
Different exchanges may have different trading fees and funding costs for seasonal contracts and perpetual contracts. These factors need to be considered when choosing the appropriate trading varieties.
The above content is an analysis and answer to the question of what the differences are between seasonal contracts and perpetual contracts. Both have their advantages, and investors can choose the contract type that suits them based on their trading goals, risk preferences, and market judgment capabilities. Some traders even combine both types of contracts to achieve different trading strategies and objectives. Regardless of which trading method is chosen, it is recommended to fully understand the characteristics, trading rules, and risk warnings of the contract type before making a choice, and to conduct appropriate risk management and capital management.
