Pro trades are currently making big profit margins from trading using the inverse swap. These big margins are pulling more investors into purchasing altcoins using perpetual contracts without looking into the risks.
Exchange of altcoins, quoted in Tether (USDT) and Stable coin parts, has become standard over the past few years making it quite convenient for traders. However, these traders are blinded to the risks that these exchanges come with, especially for those open to keeping open positions for more extended periods.
Nevertheless, before you trade with perpetual futures, you should know that variable funding rates can, in a big way, boost the cost of holding a trade. Also, many investors may not be in a position to control their actions long enough to yield results, and a stronger wick may incur losses.
Staking and liquidity mining may or may not offer positive results.
Perpetual futures does not allow for a trader to lend or stake their actions after purchase. In case you intend to hold on to your posting for a period longer than a couple of weeks, this is a crucial point to consider before partnering with them.
There are, however, many other platforms and centralized exchanges that let you stake and sell your altcoins. Such exchanges provide you with a 30-day contract that comes with either 7% to 18% APY. Such exchanges include the PolkDot (DOT), Cosmos (ATOM), Tron (TRY), and Cordon (ADA).
Traders also can use decentralized (Defi) mining pools to help them make profits by holding altcoins. This is, however, a risky move.
Leverage for strong wicks.
Leverage will always give you stronger wicks, regardless of the market’s liquidity or lack of therein.
Therefore, using futures contracts is not advisable because they use the priced index, which has many spots (regular) exchanges that prevent manipulation of the system.
The risk of fluctuating funding rates
One of the first things that perpetual futures contacts let you know is that they have an embedded rate charged every eight hours. This funding rate ensures that no exchange risk imbalances occur even though the buyer and the seller both have matching interests even when their leverages very.
For example, during the Bull Run period, demand for longs (buyer) is very high because they possess more leverage. This means that the buyers get to pay the fees.
More demand for leverage is beneficial for traders looking to hold their actions for a short period. However, those looking to hold stakes longer may opt for margin trading to borrow at a rate of between 0.5% and 1.4% and get a 3 to 10 times leverage.
The only similarity between perpetual futures and other markets is that both require the trader to deposit a margin to access the trade. However, unlike perpetual futures, other exchanges allow their investors to pick their rates and set their borrowing periods. This is a great way to avoid the risk of over flooding the market, which may occur when there are heavy market activities.
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