Perpetual and Option Contracts are popular financial derivatives used in cryptocurrency trading, allowing investors to speculate on digital asset price movements without direct ownership.
*Note - As BIT strives for continuous improvement in this fast-paced crypto environment, please note that we have since ceased offering Futures Contract services
Perpetual Contract:
Definition: Type of cryptocurrency futures contract without an expiration date.
Settlement: No expiration; perpetual contracts held indefinitely or closed at the trader's discretion.
Funding Mechanism: Used to maintain alignment with the spot price.
Use Cases: Leveraged trading, continuous exposure to the market.
Main Difference: Ongoing contract with no fixed expiration, ideal for leveraged trading.
Option Contract:
Definition: Standardized agreement to buy/sell an asset at a fixed price on a specific future date.
Expiry Date: Fixed expiration date, requiring eventual settlement.
Settlement: Physical delivery or cash settlement options.
Use Cases: Hedging, risk management, and price speculation.
Main Difference: Fixed expiration date, suitable for time-bound strategies.
Key Comparison:
Options have fixed expiry dates, while perpetual contracts are ongoing without expiration.
Options require eventual settlement through physical delivery or cash, while perpetual contracts do not.
Perpetual contracts use funding mechanisms to align with the spot price and prevent significant deviations.
Options are suitable for traditional financial markets and commodities, while perpetual contracts are more widely adopted in the cryptocurrency market.