Eager to start with crypto? Join Nexo – the trusted institution for digital assets to easily buy, earn, and exchange crypto.Sign Up
Have you ever heard of “shorting” assets? Or maybe you’re wondering what “going long” means?
Both of these terms refer to a special type of trading known as futures.
Imagine two teams tugging on a rope, each trying to pull the other into their zone in a game that has no time limit.
In perpetual futures, traders pull with long or short views on a price. There is no time limit, hence why they are known as perpetual.
If you’re long, you’re anticipating the price will go up. If you’re short, you predict that it will go down.
With perpetual futures, you're not buying the digital asset. You're simply exposed to its price changes.
This makes the strategy optimal for traders who just want to speculate on price without actually owning the asset.
To trade perpetual futures, you must deposit some assets, known as margin. This covers your position in case the other side comes out on top.
However, you can bet more than your margin. This is known as leverage.
Leverage increases both potential gains and risks. In our rope game, a team pulling recklessly might fall, leading to losses.
Perpetual futures with leverage have a similar risk, meaning both your wins and your losses are amplified.
Think about the use case for speculation.