What Are Options, Futures, and Perpetual Contracts?

These similarities border on price volatilities as well as the integration of investment or trading systems or provisions that exist in traditional financial systems and the broader stock market.

Part of the investment contracts that are attached to traditional commodities including Options, Futures, and Perpetual Contracts respectively are now also being applied to cryptocurrency assets. A summarized overview of each of these within the digital currency parlance is given below.

Option Contracts

In Option contracts, an investor bets on the future price of an asset, and profits if the conditions outlined from the beginning are met. In practice, an investor may place a Call Option (betting on price increase) to buy Bitcoin whose price is currently worth about $56,000, at the same price in 6 months’ time. Any potential increase in the price of Bitcoin from the price when the contract was made is a profit for the investor. Put Options is the exact opposite of a Call Option.

Futures Contract

Futures contracts work exactly like Options, but the major difference is that there is no obligation to purchase the underlying asset, in this case, a cryptocurrency, at the end of the contract period in Options, whereas, for Futures, the assets must be purchased. Futures contracts have a prevailing bullish impact on the market if the prices of the assets involved in the contracts have grown before the contract expiry.

Perpetual Contracts

A Perpetual contract in a digital currency context is yet a derivative product that commits a party to buy or sell a cryptocurrency at an unspecified date in the future, and as such, the contracts can span for an undefined length of time. With these contracts, investors can take advantage of perpetual funding rates to earn interest while minimizing risk from the underlying asset.

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