Imagine this scenario: You believe Sui is going to pump next week, but you don’t want to buy it right now because you don’t have enough capital, or maybe you just want to bet on the price movement. You can use a futures contract in this case.

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What Is a Futures Contract?

A futures contract is an agreement to buy or sell an asset (like SUI, ETH or BTC) at a specific price on a specific date in the future. In traditional finance, this is how farmers hedge crop prices or airlines lock in fuel costs. In crypto, it’s how you go long (buy) or short (sell) on price without owning the actual coin. What’s cool is that you can bet on price movements to both sides:
  • Going long = you think the price will go up.
  • Going short = you think it’ll drop.’
With crypto futures, you’re not trading the actual asset. You’re just betting on where the price will go. And your gains (or losses) depend on how right (or wrong) you are. Futures contracts have an expiration date. Usually, they expire monthly, quarterly, or at specific dates determined by the exchange. Once the contract expires, it’s settled at the current market price, and the position is closed automatically. What if you don’t want them to expire? Use perps!

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What Are Perpetuals (Perps)?

Perpetual contracts are like futures, but they never expire. Unlike regular futures that settle on a set date, perps just keep going, and you can open a trade and ride it as long as you want. To keep prices close to the real market (spot) price, there’s a mechanism called the funding rate. The funding rate is an interest payment between traders.
  • If lots of people are going long, longs pay shorts.
  • If more people are shorting, shorts pay longs.
This is some sort of tug-of-war that keeps the perp price anchored to the real price of the token.

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Why Trade Perps and Futures?

Instead of trading perps and futures, why not buy the real asset and hold it?
  • You get to speculate on the future price of assets regardless of the direction (go long or short) without buying them.
  • You can use leverage to amplify your gains and losses such that you use more money than you have in your custody.
  • You can use it to hedge your portfolio. Let’s say you’re holding a big bag of SUI. You don’t want to sell, but you’re worried about a short-term drop. Instead of selling you can open a short to offset your loss.
  • Since perps don’t expire, you can use them to increase your exposure to the upside of an asset compared to holding them or spot trading.
  • Since perps don’t expire, you can use them to increase your exposure to the upside of an asset compared to holding them or spot trading.
Remember that leverage comes with Risk. Derivatives can give you 10x gains or wipe your positions in a flash. If you’re going to trade futures or perps, start small, use stop-losses and respect leverage.