What is the difference between Bitcoin and Ethereum perpetual contracts?

Bitcoin and Ethereum perpetual contracts offer leverage, no expiry date, and cash settlement, but require risk management due to market volatility.

Oct 23, 2024 at 12:00 pm

Understanding Bitcoin vs. Ethereum Perpetual Contracts

1. Definition:

• Bitcoin (BTC) perpetual contract: A derivative contract that simulates the price of the underlying BTC asset without expiry and physical settlement.
• Ethereum (ETH) perpetual contract: A derivative contract that follows the price of the underlying ETH asset, also without expiry and physical settlement.

2. Underlying Assets:

• BTC perpetual contracts are based on the price of Bitcoin (BTC).
• ETH perpetual contracts are based on the price of Ethereum (ETH).

3. No Expiry Date:

• Both BTC and ETH perpetual contracts do not have a fixed expiry date.
• Traders can hold these contracts indefinitely or until they decide to close them.

4. No Physical Settlement:

• Perpetual contracts are cash-settled instead of physically delivering the underlying asset.
• Traders profit or lose based on the price movement of the underlying asset.

5. Leverage:

• Both BTC and ETH perpetual contracts offer leverage, allowing traders to control a larger position with a smaller initial capital.
• Leverage levels typically range from 10x to 100x.

6. Funding Rates:

• BTC and ETH perpetual contracts have funding rates that adjust based on supply and demand in the market.
• Traders holding long (buy) positions pay funding to those holding short (sell) positions if the market is bullish.

7. Market Volatility:

• BTC and ETH perpetual contracts can be more volatile than the underlying spot markets.
• Traders need to manage risk carefully due to high leverage.

8. Margins:

• Traders must maintain a specific amount of margin, or collateral, to open and hold positions.
• Margin requirements vary based on the exchange and leverage level used.

9. Trading Commissions:

• Exchanges charge trading commissions, which can vary in structure and fee rates.
• Traders should consider commissions when choosing an exchange.

10. Suitability:

• BTC and ETH perpetual contracts are suitable for experienced traders who understand leverage and volatility.
• Beginners should consider spot markets or futures contracts with limited or no leverage.