Perpetual Futures vs. Traditional Futures: Key Differences

Perpetual futures and traditional futures have several key differences. Perpetual futures contracts do not have an expiration date, allowing traders to hold positions indefinitely, while traditional futures have a fixed expiration date, requiring traders to close or roll over positions. Perpetual futures utilize a funding rate mechanism to keep the contract price close to the underlying asset's spot price, with periodic payments between long and short positions, whereas traditional futures settle at the expiration date without such a mechanism. Additionally, perpetual futures offer continuous 24/7 trading, especially in cryptocurrency markets, providing more flexibility compared to the limited trading hours of traditional futures, which may close on weekends and holidays. Leverage is typically higher in perpetual futures, enabling traders to control larger positions with less capital, though this also increases risk.