Dear PancakeSwap Community,
Our Perpetuals v2 product enhances the concepts of decentralization, self-custody, and transparency, which are pivotal to the blockchain ecosystem. In this edition of the series, we will guide you through all the benefits and strategies of Perpetuals Trading, an invaluable tool for the contemporary crypto trader. We will cover the basic elements of Perpetual Trading, how it's currently used by traders, and how PancakeSwap Perpetuals v2 enhances the trading experience.
Before we dive in, we want to emphasize that the information shared in this blog is solely for educational purposes. It is not intended as investment advice, nor should it be construed as such. Perpetuals trading involves inherent risks, so please conduct your own thorough research.
Perpetual trading is a financial derivative akin to traditional futures contracts but without an expiration date. This innovative form of trading allows crypto traders to benefit from both rising and falling market trends. Perpetual trading occurs through the trading of Perpetual Contracts. These contracts mimic the price of the underlying asset and have no expiry date, which means traders can hold positions indefinitely. Perpetual contracts also allow the use of leverage, multiplying the potential profits (and losses). The critical elements include funding rates that ensure the contract price stays close to the underlying asset's price. With the leverage offered in perpetual contracts, traders can multiply their profits; however, it's crucial to remember that the potential losses are also multiplied.
Perpetual Trading vs. Spot Trading
Spot trading involves buying or selling an asset—crypto or fiat—and the transaction is settled "on the spot." Once a trade is finalized, the ownership of the asset is transferred immediately. It's the most straightforward form of trading where you exchange the asset for cash or another asset. In contrast to perpetual trading, spot trading doesn't involve leverage, and the maximum risk is the total amount invested in buying the assets.
Perpetual Trading vs. Options Trading
Options Trading, another form of derivatives trading, gives traders the right but not the obligation to buy (Call Option) or sell (Put Option) an asset at a predetermined price before a specific date. In contrast to Perpetuals, Options have an expiry. In options trading, the risk is limited to the premium paid for the option, while the potential profits (and losses) can be significant, depending on the price movement of the underlying asset.
Here's how Perpetual Trading stands out from Spot and Options Trading:
Ownership & Expiry: Unlike spot trading, in perpetual trading, you don't own the actual asset; instead, you speculate on its price. Moreover, unlike options, perpetual contracts have no expiry date.
Leverage: Perpetual trading allows the use of leverage to maximize potential profits (and losses), a feature not available in spot trading and typically limited in options trading.
Risk Profile: Perpetual trading and options trading allow for sophisticated trading strategies and have a different risk profile compared to spot trading. While spot trading risks are limited to the total investment, in perpetual trading, losses can exceed the original investment due to leverage. In options trading, the risk is limited to the premium paid.
Market Influence: Options and Perpetuals trading can significantly influence the spot market prices due to the hedging activities performed by market participants.
A few common strategies adopted by perpetual traders are:
Trend Following: In this strategy, traders identify the market's direction (up or down) and place trades in line with the trend to make a profit (and losses).
Range Trading: If the market is moving sideways, traders can profit (and losses) from the price volatility by buying low and selling high within the price range.
Breakout Trading: Traders use this strategy to enter the market when the price breaks from the previously defined range, anticipating a substantial price movement in the breakout direction.
PancakeSwap Perpetuals v2 brings forth several advantages over its competitors:
Decentralization and Transparency: Perpetuals v2 operates on the BNB Chain, thereby supporting complete decentralization, allowing users to trade directly from their non-custodial wallets.
Superior Security: v2 uses price feeds from both Binance Oracle and Chainlink, ensuring abnormal price behavior can be promptly identified and addressed. Notably, v2 has been audited by Salus Security, Certik, and PeckShield, adding a layer of trust and safety.
Innovative Features: v2 introduces support for USDT and USDC for trading, detailed trading history, easily adjustable TP/SL to existing positions, and increased leverage for BTCUSD and ETHUSD to up to 150x. V2 also supports a newly launched “Degen Mode”, supporting up to 500x leverage for certain trading conditions.
Efficient Protocol Design and Fee Structure: v2's shared liquidity via the ApolloX Liquidity Pool (ALP) maximizes capital efficiency and allows for larger position sizes.
Zero Slippage: Unlike traditional order-book models, v2 provides zero slippage and infinite liquidity, a game-changing feature in the trading domain.
Getting started with PancakeSwap Perpetuals v2 is a breeze:
We hope that this guide deepens your understanding of Perpetuals v2. We want to emphasize that the information shared in this blog is solely for educational purposes and is not intended as investment advice. While our guide aims to enhance your understanding of perpetuals v2 trading concepts, it's essential to apply your own judgment and risk management techniques when navigating the world of perpetuals.
Stay tuned for the following weeks as we continue to delve into more aspects of Perpetuals v2!
Stack 'em,
The Chefs 🥞