What Is a Linear Contract?
A linear contract is a perpetual contract quoted and settled in stablecoins, with no expiry date. It uses funding rates to track spot prices.
Answer: A linear contract is a perpetual contract quoted and settled in stablecoins (such as USDT). It has no expiry date and relies on the funding rate to keep its price close to the spot price. It is a type of perpetual contract, and its counterpart is the inverse contract (quoted and settled in the underlying asset, such as BTC).
#What Is a Perpetual Contract?
A perpetual contract has no expiry date and can be held indefinitely.
It differs from spot trading: spot involves buying real coins, while a perpetual contract is a derivative and does not involve physical delivery.
It also differs from a delivery contract: a delivery contract has an expiry date, while a perpetual contract does not.
Analogy: Spot trading is like buying a house outright; a perpetual contract is like signing a bet on the house price without actually transferring ownership.
#How Does the Funding Rate Work in Perpetual Contracts?
The funding rate is a fee exchanged periodically between long and short positions.
When the market is bullish, longs pay shorts; when bearish, it is the other way around.
The rate level reflects supply and demand. The settlement interval is set by the platform, commonly every 8 hours (subject to the specific platform's rules).
Analogy: It is like at a popular restaurant where people waiting in line pay those leaving a 'leveling fee.'
#What Risks Should You Be Aware of Before Using Perpetual Contracts?
Leverage amplifies profits and losses. Under high leverage, even a small price movement can lead to significant margin losses or total loss.
If margin is insufficient, the position will be liquidated. Start with a small position to understand the mechanics.
This is not investment advice. Digital assets are extremely volatile.
FAQ
What is a linear contract?
A linear contract usually refers to a perpetual contract quoted and settled in stablecoins. It has no expiry date, profits and losses are settled in stablecoins, and it uses the funding rate to anchor the spot price.
What is the difference between a perpetual contract and spot trading?
Spot trading directly holds assets; a perpetual contract is a derivative that does not involve physical delivery. It allows going long or short with leverage and carries liquidation risk.
How often is the funding rate settled?
The funding rate is paid periodically between long and short positions. The settlement interval varies by platform, commonly every 8 hours. Please refer to the specific platform's rules.
How risky is leverage in perpetual contracts?
Leverage amplifies both gains and losses equally. Under high leverage, positions can be liquidated quickly. Beginners should start with a small position to test the waters. This is not investment advice.
Are linear contracts suitable for beginners?
Beginners should first understand the mechanics of spot and perpetual contracts and avoid high leverage. Start with a small position to test the waters. This is not investment advice.
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