Perpetual Futures Contract Overview

Perpetual futures contracts enable investors to both speculate on the direction of price movements and hedge against the risk of price fluctuations, without a specific expiry date. These contracts allow users to maintain their position for an indefinite period of time. To speculate on the price direction, a user can "go short" on a futures contract written as a crypto token if they believe its price will decrease, or "go long" if they anticipate an increase in price. If the user's view is correct, they will earn a profit, but they will incur a loss if their prediction is incorrect. Futures contracts can also be utilized to mitigate the risk of price volatility.

For example, an investor holding Bitcoins could go short on Bitcoin to offset any losses incurred against their position. Shorting Bitcoin allows users to profit from price decreases, reducing risk during times of high volatility or significant declines.

Examples on entering a short position to reduce risk

For example, let's consider John, who currently holds Bitcoin at a price of $50,000 but predicts a significant decrease in price. To avoid potential losses, John can enter a short position on FWX DDEX without leveraging, allowing him to speculate on the price decline.

If, after two days, the price of Bitcoin drops to $45,000, John can choose to close the position and earn a $5,000 profit.

However, if the price of Bitcoin increases to $55,000, John would incur a $5,000 loss. Using 5x leverage when entering the same position would multiply both the potential profit and loss by five.