Perpetual futures (perps), futures, and options are all derivative contracts used for speculation and hedging, but there are important differences between all of them.
Feature | Futures | Perps | Options |
Obligation | Obligated | Obligated | No obligation |
Expiration Date | Fixed expiration date | No expiration | Fixed expiration date |
Leverage | High leverage | High leverage | Leverage limited to premium |
Funding Mechanism | No | Yes | No |
Cost Structure | Margin requirements, potential fees | Funding rate and margin requirements | Premium |
Risk Profile | Unlimited or significant risk due to leverage | Unlimited or significant risk due to leverage | Limited risk |
Flexibility | Limited by expiration date | High, can be held indefinitely | High, with various strategies |
Futures
Futures are standardized agreements to buy or sell an asset at a set price on a future date. Both parties are obligated to fulfill the contract at expiration. Futures are often leveraged and can be settled in cash or through physical delivery. They are used for hedging or speculating on future price movements.
Perps
Perps are similar to futures but have no expiration date, allowing traders to hold positions indefinitely. The contract price is kept aligned with the spot price through periodic funding payments. Perps are highly liquid and popular for continuous speculation and leverage in crypto markets. They don’t require rolling over contracts like standard futures.
Options
Options give the buyer the right (but not the obligation) to buy (call option) or sell (put option) an asset at a set price before or at expiration. The buyer pays a premium for this right. Unlike futures and perps, options allow for complex strategies with limited risk.
Key Differences
Expiration: Futures and options have a fixed expiration date, while perps do not.
Obligation: Futures and perps involve obligations, while options give the buyer a choice.
Risk: Futures and perps carry unlimited risk with leverage, while options limit the risk to the premium paid.
In DeFi, each contract serves different purposes: perps for ongoing trades, futures for time-bound speculation, and options for defined-risk strategies.