Understanding Futures

Perpetual contracts are one of the most popular derivative products in cryptocurrency. They entail an agreement to buy or sell something at a set price for all time, which can be broken only by both parties agreeing on termination terms beforehand.

Perpetual futures contracts allow traders to bet on the future price of a given asset by going long or short these perpetual deals. Unlike typical futures, which expire and lose their value after only one day inactivity; with perpetual contracts you can enjoy guaranteed profits as your investment stays effective until its closing position.

There is often a divergence between the price of the perpetual contracts and the spot market. Such diverges could indicate a specific sentiment, e.g. when the traders expect the asset to increase in value, the contract price will likely be higher than the spot price, vice versa.

This process is balanced through funding payments and arbitrage. Depending on the market status, a funding payment will be made between traders at every hour:

⦁ If the contract price > spot price, longs pay shorts

⦁ If the contract price < spot price, shorts pay longs

The funding payments are determined by the difference between those two prices and your position size, which motivates traders to bet against the market.

If the difference between those two prices is too high, through arbitrage, traders can benefit by

⦁ Using AMOK to trade inversely and earn funding payments ⦁ Using AMOK to long or short an asset bought or sold elsewhere, with the sentiment being that the contract price will fall closer to the spot price.