Perpetual vs. Delivery

Perpetual vs. Delivery Futures: A Comprehensive Guide for Beginners

Introduction

The world of crypto futures trading can seem complex, especially for newcomers. Two primary types of futures contracts dominate the landscape: Perpetual Contracts and Delivery Futures (also known as Quarterly Futures). Understanding the differences between these two is crucial for anyone looking to participate in leveraged trading of cryptocurrencies. This article provides a detailed explanation of each contract type, highlighting their features, advantages, disadvantages, and suitable trading strategies. We will equip you with the knowledge to navigate these markets effectively.

Understanding Futures Contracts

Before diving into the specifics of Perpetual and Delivery Futures, let's first establish a foundational understanding of what a futures contract *is*. A futures contract is an agreement to buy or sell an asset at a predetermined price on a specified future date. In the context of cryptocurrency, this "asset" is typically a cryptocurrency like Bitcoin or Ethereum.

Delivery Futures (Quarterly Futures): These contracts obligate the buyer to receive the underlying asset and the seller to deliver it on the contract's expiry date.
Perpetual Contracts: These contracts do *not* have an expiry date. They remain open indefinitely, allowing traders to hold positions for as long as they maintain sufficient margin.

Delivery Futures (Quarterly Futures): The Basics

Delivery Futures, often called Quarterly Futures because of their typical settlement schedule (March, June, September, December), operate similarly to traditional futures contracts in other markets like commodities or stock indices.

Settlement Date: A key characteristic is the predetermined settlement date. On this date, if you hold a long position, you are obligated to take delivery of the underlying cryptocurrency. Conversely, if you hold a short position, you must deliver the cryptocurrency.
Contract Size: Each contract represents a specific quantity of the underlying cryptocurrency. For example, one Bitcoin Quarterly Future contract might represent 1 BTC.
Funding Rate: Unlike Perpetual Contracts, Delivery Futures generally do *not* have a funding rate mechanism (explained later).
Price Convergence: The price of the futures contract tends to converge with the spot price of the underlying cryptocurrency as the settlement date approaches. This convergence is driven by arbitrage opportunities.

Advantages of Delivery Futures

Straightforward Mechanism: The concept is relatively easy to understand, mirroring traditional futures markets.
Predictable Settlement: The settlement date is fixed, eliminating uncertainty about when the contract will expire.
Lower Risk of Liquidation (potentially): While liquidation is still possible, the absence of a funding rate can sometimes reduce immediate pressure on positions.

Disadvantages of Delivery Futures

Delivery Requirement: The obligation to take or deliver the underlying asset can be inconvenient for traders who simply want to speculate on price movements. Most traders don't want to physically hold and store the cryptocurrency.
Contract Rollover: To maintain a continuous position, traders must “roll over” their contracts before expiry, closing the expiring contract and opening a new one for the next quarter. This process can incur slippage and potential losses. See Contract Rollover Strategies for more details.
Limited Flexibility: The fixed settlement dates limit trading flexibility.

Perpetual Contracts: The Innovation

Perpetual Contracts were introduced to address the limitations of traditional delivery futures in the cryptocurrency space. They are designed to mimic the behavior of spot markets without the need for physical delivery.

No Expiry Date: The defining feature of Perpetual Contracts is the absence of an expiry date.
Funding Rate: To keep the Perpetual Contract price (known as the "mark price") anchored to the spot price, a mechanism called the “funding rate” is employed. The funding rate is a periodic payment exchanged between long and short position holders.

   * Positive Funding Rate:  If the Perpetual Contract price is *above* the spot price, long positions pay short positions. This incentivizes traders to short the contract, bringing the price down towards the spot price.
   * Negative Funding Rate: If the Perpetual Contract price is *below* the spot price, short positions pay long positions. This incentivizes traders to long the contract, bringing the price up towards the spot price.

Mark Price vs. Last Traded Price: The *mark price* is the reference price used for calculating P&L and liquidation. It's based on the spot price, while the *last traded price* is the price at which the most recent trade occurred. Discrepancies can occur, especially during periods of high volatility.
Liquidation: Like all leveraged products, Perpetual Contracts are subject to liquidation if the mark price moves against your position and your margin falls below a certain level. Understanding Risk Management is crucial.

Advantages of Perpetual Contracts

No Expiry or Rollover: Traders can hold positions indefinitely without the hassle of rolling over contracts.
High Liquidity: Perpetual Contracts generally have higher trading volume and liquidity compared to Delivery Futures, leading to tighter spreads and easier order execution. See Trading Volume Analysis for more information.
Flexibility: The continuous nature of the contracts offers greater flexibility in trading strategies.
Close Price Tracking: The funding rate mechanism aims to maintain a close relationship between the contract price and the spot price.

Disadvantages of Perpetual Contracts

Funding Rate Costs: Traders can incur costs from paying or receiving funding rates, especially if they hold positions for extended periods.
Complexity: The funding rate mechanism can be confusing for beginners.
Liquidation Risk: The leverage inherent in futures trading amplifies both potential profits and potential losses, increasing the risk of liquidation.

Perpetual vs. Delivery: A Detailed Comparison

Here’s a table summarizing the key differences:

| Feature | Perpetual Contract | Delivery Future (Quarterly) | |---|---|---| | **Expiry Date** | No | Yes (typically quarterly) | | **Settlement** | No physical delivery | Physical delivery of the underlying asset | | **Funding Rate** | Yes | Generally No | | **Rollover** | Not required | Required to maintain a continuous position | | **Liquidity** | Generally higher | Generally lower | | **Complexity** | More complex (funding rate) | Less complex | | **Price Tracking** | Aims to closely track spot price via funding rate | Converges to spot price near expiry |

Another comparison focusing on trading implications:

| Aspect | Perpetual Contract | Delivery Future (Quarterly) | |---|---|---| | **Trading Strategy** | Scalping, swing trading, hedging, algorithmic trading | Longer-term hedging, position trading, arbitrage | | **Cost of Holding** | Funding rate payments/receipts | Potential rollover costs | | **Risk Management** | Requires careful monitoring of margin and funding rates | Requires monitoring of margin and upcoming expiry | | **Market Impact** | More susceptible to short-term market fluctuations | Less susceptible to short-term fluctuations, more influenced by expiry dynamics |

And finally a comparison of exchange availability:

| Exchange | Perpetual Contracts | Delivery Futures (Quarterly) | |---|---|---| | Binance | Yes | Yes | | Bybit | Yes | Yes | | OKX | Yes | Yes | | Deribit | Yes | Yes | | Kraken | Yes | Yes | | BitMEX | Yes | Limited |

(Note: Availability can change. Check the specific exchange’s offerings.)

Trading Strategies for Each Contract Type

The choice between Perpetual and Delivery Futures depends on your trading style and objectives.

Perpetual Contracts: Ideal for:

   * Scalping: Exploiting small price movements. See Scalping Strategies.
   * Swing Trading:  Capturing medium-term price swings.  See Swing Trading Techniques.
   * Hedging: Offsetting risk in spot positions.  See Hedging with Futures.
   * Algorithmic Trading:  Automated trading strategies.  See Automated Trading Systems.
   * Trend Following: Identifying and capitalizing on established price trends. See Trend Following Indicators.

Delivery Futures: Ideal for:

   * Long-Term Hedging: Protecting against potential price declines over a specific period.
   * Arbitrage: Exploiting price discrepancies between the futures contract and the spot market. See Arbitrage Opportunities.
   * Position Trading:  Holding positions for several months, anticipating significant price movements.  See Position Trading Fundamentals.
   * Calendar Spreads: Trading the difference in price between futures contracts with different expiry dates. Calendar Spread Trading.

Factors to Consider When Choosing

Your Trading Style: Are you a short-term trader or a long-term investor?
Risk Tolerance: How comfortable are you with the risk of liquidation?
Capital Availability: Do you have sufficient capital to cover margin requirements and potential funding rate costs?
Market Conditions: Consider the prevailing market volatility and funding rate environment.
Exchange Fees: Compare trading fees across different exchanges.

Resources for Further Learning

Conclusion

Both Perpetual and Delivery Futures offer unique advantages and disadvantages. There is no "one-size-fits-all" answer. Understanding the nuances of each contract type, coupled with a sound risk management strategy, is essential for success in the dynamic world of crypto futures trading. Carefully consider your trading style, risk tolerance, and market conditions before choosing the contract that best suits your needs. Remember to continuously learn and adapt your strategies as the market evolves.

Recommended Futures Trading Platforms

Platform	Futures Features	Register
Binance Futures	Leverage up to 125x, USDⓈ‑M contracts	Register now
Bybit Futures	Perpetual inverse contracts	Start trading
BingX Futures	Copy trading	Join BingX
Bitget Futures	USDT‑margined contracts	Open account
BitMEX	Up to 100x leverage	BitMEX

Join Our Community

Subscribe to @cryptofuturestrading for signals and analysis.

🚀 Get 10% Cashback on Binance Futures

Start your crypto futures journey on Binance — the most trusted crypto exchange globally.

✅ 10% lifetime discount on trading fees
✅ Up to 125x leverage on top futures markets
✅ High liquidity, lightning-fast execution, and mobile trading

Take advantage of advanced tools and risk control features — Binance is your platform for serious trading.

Start Trading Now