What Are Perpetual Contracts?

Perpetual contracts are very similar to futures contracts in terms of their profit and loss structures. Before we elaborate on what perpetual contracts are, let us review the basics of spot and futures trading.

Spot trading refers to the buy or sale of an asset for instant settlement. 

For example, the price of crude oil is expected to rise due to the deteriorating situation in the Middle East. As such, Company A agrees with crude oil suppliers to buy 5,000 barrels of crude oil at $175,000 immediately, with a spot price of $35 per barrel. A week later, the spot price rose to $40 per barrel, which is in favor of Company A as it saves $25,000.

Futures contract is an agreement to buy or sell an asset at a predetermined price at a specific time in the future.