Having been in the crypto space for nearly ten years, I’ve transitioned from a newbie in spot trading to an old hand in contracts. Today, I will use plain language to explain what 'perpetual contracts' in the crypto world are.
Let’s skip the definitions that sound complex and just talk about what you can understand and immediately apply!
In a nutshell: A perpetual contract is essentially a bet with 'no expiration date', betting on the future price movement of a particular coin (like Bitcoin or Ethereum)!
Don’t rush, let me break it down for you:
The essence of the 'bet': You don’t need to actually buy coins (that’s called 'spot trading'). You just need to open a 'contract order' at the exchange, choosing whether you’re bullish (long) or bearish (short) on a particular coin.
For example, if you think Bitcoin will rise, you open a 'long' position; if you think it will fall, you open a 'short' position.
If you bet on the right direction (the price really rises or falls), you make money; if you bet wrong, you lose money. It’s that simple!
The biggest feature is 'no expiration date':
Traditional 'futures contracts' have expiration dates, such as the end of next month. On that day, regardless of whether you make a profit or a loss, the contract must be settled.
The beauty of perpetual contracts lies in their 'perpetuality'! As long as your account has enough money (margin) to withstand fluctuations, theoretically you can hold it indefinitely without forced settlement. This makes it very suitable for medium to long-term trend trading, without the hassle of needing to switch contracts like traditional futures.
So how to ensure that the price doesn’t 'fly randomly'? Anchor it to the spot price!
The question arises: Without an expiration date, will the contract price run wild, diverging significantly from the spot price (real market price)? For example, if the spot price of Bitcoin is $50,000, could the contract price soar to $100,000?
The exchanges invented a brilliant mechanism: the funding rate!
What is the funding rate? Simply put, it is the 'protection fee' (or 'interest') that winners pay to losers, aimed at pulling the contract price back near the spot price.
When the contract price > spot price (usually when market sentiment is bullish): At this time, those going long (betting on a rise) must pay those going short (betting on a fall) (negative funding rate). This is like pouring a little cold water on the bullish enthusiasm, encouraging everyone to short and pull down the excessively high contract price.
When the contract price < spot price (usually when market sentiment is bearish): At this time, those going short must pay those going long (positive funding rate). This is like adding fuel to the pessimistic sentiment, encouraging everyone to go long and raise the excessively low contract price.
How often is it paid? Typically, it’s settled every 8 hours or daily. The exchange automatically deducts or pays money from your account. Therefore, when trading perpetual contracts, you must not only pay attention to whether the price direction is correct but also keep an eye on whether the funding rate is positive or negative, and how high it is. If you’re wrong in direction and have to pay funding fees, it’s like adding salt to a wound, causing you to lose even faster! Conversely, if you’re right in direction and receive funding fees, that’s icing on the cake.
Core Weapon: Leverage!
This is the ultimate essence that makes contracts attractive (and can also bury people)!
What is leverage? It is an amplifier of 'small bets for big gains'!
How to play? You only need to take out a small amount of money as margin to leverage a much larger contract position.
For example: The current price of Bitcoin is $50,000. If you want to buy 1 Bitcoin in spot, you need to pay $50,000 in cash.
Opening a perpetual contract: You use 100x leverage. So you only need to put out $500 ($50,000 / 100) as margin to control a Bitcoin contract worth $50,000!
Profit amplification: If Bitcoin rises to $51,000 (up 2%), you make $1,000 in spot (2% profit). How much do you earn in contracts? Because you control a $50,000 position, a 2% increase means a profit of $1,000! But your principal is only $500, so your actual return rate is $1,000 / $500 = 200%! Isn’t that great?
Risk is also amplified: If Bitcoin falls to $49,500 (down 1%), you lose $500 in spot (1%). What about your contract? You lose $500 (from a $50,000 position * 1%), but your principal is only $500! At this point, your margin is gone, and the system will forcibly close your position with nothing left! This is called liquidation. A 1% drop wipes you out! This is the terrifying aspect of 100x leverage.
Leverage is a double-edged sword; it’s also a meat grinder! I’ve seen too many beginners perish from misusing high leverage. Remember what Lao Li said: Beginners should avoid high leverage (anything above 20x is considered high)! Start with low leverage (5x, 10x) to practice, feel the cruelty of the market and fluctuations in capital. Surviving gives you the chance to make money.
Summarize key points of perpetual contracts (must-read for beginners):
Betting direction: Long (bet on rise) or Short (bet on fall).
Perpetual existence: No expiration date, theoretically you can hold it as long as you don’t get liquidated.
Funding rate: Core mechanism! Ensures contract prices are close to spot prices. Both sides periodically 'pay' each other, depending on the divergence between contract and spot prices. Always check the rate before placing a trade!
Leverage: Core Tool! Amplifies profits but also amplifies risks! Beginners should stay away from high leverage! It is a shortcut to quick wealth but also a highway to liquidation hell.
Margin: The money you stake when you open a position. If you lose most of it, you will be liquidated.
Liquidation: Margin is wiped out, forced closing by the system, and principal drops to zero (or nearly zero). This is the biggest nightmare for contract players.
Let me share some heartfelt words (hard-earned experiences):
Perpetual contracts are not spot trading! They are high-risk financial derivatives. If the spot price falls, you can hold on (as a shareholder); if the contract price falls sharply, you’ll be liquidated directly without a chance to hold on!
If you don’t understand the funding rate, don’t play contracts! Being clueless could lead to losing money, and even if you make a profit, part of it could be eaten away by fees.
Beware of leverage! It is a tool, but also a deadly weapon. Position management and stop-loss discipline are a thousand times more important than predicting price movements! I’ve seen too many 'gods' perish due to not setting stop-loss and going all in.
Advice for beginners: First get familiar with spot trading and understand market behavior. If you really want to try contracts, use a very small amount of money that you won’t mind losing, and open a very low leverage (below 5) to simulate the feel of real combat. Don’t think about getting rich overnight; first learn how to survive!
The contract market is a zero-sum or even negative-sum game (considering transaction fees and funding fees). Your earnings come from others’ losses. There’s no mercy here; only the survival of the fittest.
If you also want to treat trading cryptocurrencies as a second income source, want to share a piece of the pie in the crypto world, and are willing to spend time learning and growing, then don’t miss this article; read it thoroughly, as every point is the essence of the crypto space.
Eight Basic Principles of Contract Trading (Must-learn for Beginners)
1. The risk of each trade must not exceed 10% of the trading principal, which is 10% of the trading principal. Beginners are advised to keep it between 2%-5%.
2. After entering the market, you must not blindly close positions due to lack of patience. Market movements take time; until the market proves your actions are wrong, you must have sufficient confidence and patience.
3. Must execute according to plan; excessive trading is strictly prohibited.
4. After trading correctly and making a profit, use adjustment of stop-loss and take-profit as a safeguard, and boldly strive for even greater profits until the trend changes.
5. After entering the market, you cannot casually cancel the stop-loss order. Once you enter the market, your entire trading process follows you throughout your life; it is a process of risk control. Therefore, after entering, you must set protections and avoid running naked.
6. Avoid adding positions after successful trades, as the probability of making mistakes is very high due to complacency.
7. You cannot casually switch from long to short positions; this is a highly skilled operation.
8. When buying and selling becomes second nature, avoid casually adding to positions, as the chances of making mistakes are very high due to overconfidence.
Pitfall Guide: These four tips will save you from disaster.
Contract trading makes money quickly, but can also lead to losses just as fast. I’ve listed the common pitfalls beginners fall into; just avoid them:
1. Going all in: Don’t bet your life savings.
Investing too much at once can lead to liquidation at the slightest market fluctuation. It is advisable to only use 10%-20% of your account for trading, leaving room to maneuver.
2. Chasing highs and killing lows: Emotional 'suicidal' trading.
Prices shoot up, rush in; when they plummet, cut losses and flee, often buying at the peak and selling at the trough. Stay calm, make a plan before acting.
3. Ignoring risk control: No stop-loss is equivalent to running naked.
Not setting stop-loss (automatic closing of losing positions) and take-profit (locking in profits) is like throwing money into a casino. Set a bottom line before each trade, for example, if you lose 10%, get out; if you gain 20%, take it; don’t rely on luck.
Additionally, take this opportunity to organize some crypto opportunities I believe can be seized in the second half of 2025, specifically referring to airdrops. Space is limited, and there’s much more to share; I’ll save that for next time.
In the field of airdrops in the crypto space, many people feel it is difficult to operate now and easy to get burned. But since I started participating in airdrops in 2021, I have been in this field for four years. I know well that this area, like the spot market, will have dormant and volatile periods. Burnout during bad times is indeed severe, and many will be washed out, but often after that, big opportunities arise. Therefore, this industry will never die; the key is to make good preparations during the bad times. Now let me talk about some airdrop projects I am currently involved in during this period.
Infinex is a decentralized contract platform similar to Gmx, with high financing limits and near-zero loss methods, currently in the testnet phase. It benchmarks against AEVO, which has performed well in the past, and its potential is worth expecting. I have personally invested in several accounts to participate.
Camp is a blockchain game project that is very energy-consuming to operate, with numerous tasks that can filter out many people unwilling to invest time and script users, yet the cost is very low. Its lineup and model are quite similar to last year's movement, and I have friends who achieved good profits through movie, so I have great confidence and am deeply involved.
0g is a top-level project, belonging to the innovative sector's airdrop project, somewhat reminiscent of L2 from back in the day. Although it seems highly competitive, data from Dune shows that during the airdrop valley period, there weren’t many actual participants. Coupled with high financing and high expectations, it’s a project worth getting into.
Alpha is an emerging CEX airdrop project, with participants earning approximately over $20,000 in the first two months. Although there have been many negative news recently, and many feel it can no longer be leveraged, I believe it is backed by a certain security, and is currently just in a market fluctuation period. As long as we maintain a high trading volume, when the market reverses, there’s a high probability of good earnings.
These projects are what I am currently involved in during the airdrop valley period; most of them don’t require too much capital investment. I hope everyone can seize the opportunities in the second half of 2025; there might be surprises. Of course, this article does not constitute investment advice, and everyone should make their own judgments.
Final words: Perpetual contracts are a powerful tool provided to professional traders (or risk-tolerant adventurers) in the crypto space. It’s like an incredibly sharp sword; used well, it can cut through iron; used poorly, it can sever your hands and feet. New friends, heed my advice: first practice your internal skills (knowledge, mindset, discipline) before handling sharp tools! Don’t let contracts be the end of your crypto career.
The market is never short of opportunities; what it lacks are survivors.
