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The Advantages of Perpetual Futures Trading

2023.08.9 MEXC

In both traditional finance and centralized cryptocurrency trading platforms, futures trading occupies a significant market share. Perpetual futures contracts have rapidly become one of the most popular investment methods in cryptocurrency trading. What makes them so popular? How can perpetual futures assist your trading strategy?

1. Leverage

In general, perpetual futures contracts trading offers leverage, allowing you to gain substantial profits with a relatively small "principal" amount. How is this achieved? It's because perpetual contracts operate on a margin mechanism: you only need to deposit a small amount of margin to meet the conditions for opening a position. This small margin reduces the risk exposure for investors during the investment process.

For example

On MEXC, if you invest in BTC/USDT perpetual contracts, you only need to invest 5% of the spot price to open a long or short position. Let's take the example of buying 30,000 USDT worth of BTC using leverage:

  • When the initial margin for BTC is 100%, you would need 30,000 USDT (corresponding to 1x leverage) to open the position.

  • When the initial margin is 80%, you would only need 24,000 USDT to open the position.

  • On MEXC, with 200x leverage for BTC/USDT perpetual contracts, you would only need to spend 150 USDT to open the position, with a margin rate of only 0.5%.

Additionally, MEXC offers various leverage modes, allowing you to choose whether to use the same leverage for both long and short positions or different leverages for each direction.

2. Trading Strategy

2.1 Two-way Market T+0

  • Due to the operational mechanism of perpetual contracts being a "two-way market T+0", you can profit from both upward and downward trends. Whether you go long on a futures trading pair during an uptrend or short during a downtrend, you can reap substantial profits. Thus, when applied to the entire cryptocurrency market, trading perpetual futures allows you to benefit in both bullish and bearish scenarios.

  • To meet the demands of some MEXCers for maximizing profits in short-term trends, MEXC has introduced [Take-profit Reverse] and [Stop-loss Reverse] features in futures trading. These features help MEXCers earn profits from both sides of the market in short-term trends.

2.2 Similarities with the Spot Market

  • When it comes to "perpetual contracts" or "futures trading," some MEXCers may perceive them as sophisticated and highly risky financial instruments. However, futures trading simulates spot trading in terms of market dynamics.

  • On one hand, futures trading utilizes the "funding rate" to make the futures settlement price approach the spot market price, mitigating extreme price fluctuations and controlling risks. On the other hand, futures orders include several common order types used by MEXCers in spot trading: limit orders, market orders, and trigger orders (corresponding to spot limit orders). Therefore, if you have experience trading in the spot market, trading perpetual futures should not be difficult for you.

2.3 Easy Settlement

  • In the spot market, if you want to invest in a particular digital currency, you need to own that specific cryptocurrency. When you have made a profit, you can sell the cryptocurrency to realize your gains. Alternatively, if you already hold a certain digital currency in your wallet and wish to cash out, you would need to deposit it into the exchange's wallet, then sell it on the spot trading market to complete the cash-out process.

  • For perpetual contracts, there are only two types of it: USDT-M perpetual contracts and Coin-M perpetual contracts. For USDT-M perpetual contracts, you only need to possess USDT for both opening and closing positions. For Coin-M perpetual contracts, you only need to hold the corresponding cryptocurrency. This convenient settlement mechanism facilitates faster and more efficient trading.

2.4 Hedging Risk

The trading mode of perpetual contracts is a "two-way market T+0," allowing both long and short positions. In contrast, the spot market operates under "one-way market T+0," where you can only take long positions. Therefore, when encountering a bear market or a market downturn, if you still hold positions in the spot market, you have to choose between enduring asset reductions or exiting through stop-loss. However, in perpetual contracts, using the [Hedge Mode] allows you to simultaneously hold both long and short positions, achieving a balanced PNL for your total assets.

2.5 0 Maker Fee

In MEXC futures trading, the Maker fee has been reduced to 0. To put it simply, a Maker is someone who places limit orders and waits for them to be filled. They provide market liquidity and engage in passive trading. You can also use this special order type to manage your funds wisely and avoid unnecessary losses.

2.6 Controllable Risk

As a mature futures trading platform, MEXC provides customized margin modes for both USDT-M and Coin-M trading pairs:

  • Under the Cross Margin mode, all available funds of the MEXCer will be used as the margin for their positions.

  • Under the Isolated Margin mode, each position has its own separate margin account. This means MEXCers can flexibly choose to evenly distribute the margin across all positions or set different margin limits for each individual position.

3. Conclusion

For MEXCers, perpetual contracts provide a simple way to have no expiry date and hold leveraged positions in the cryptocurrency market. The innovative features, such as customized margin modes, enable traders to deploy complex trading strategies, leading to more efficient management of MEXCers' margins and PNL. This makes Coin-M perpetual contracts an ideal product for long-term investors, speculators, and hedgers.

Risk Warning: Trading involves risks, and investments should be made with caution. The content provided does not constitute any investment advice. Please make your investment decisions based on your individual investment goals, financial situation, and risk tolerance.

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