A quarterly futures contract enables a trader to buy or sell an underlying asset at a predetermined price before a specified period. In simpler terms, futures contracts have a limited lifespan and expire according to their specific calendar cycle. For example, our BTC0924 is a quarterly future contract set to expire 3 months from its issuance date.
Conversely, perpetual futures contracts, as the name implies, lack an expiration date. This means traders don't need to keep track of various delivery months, unlike with quarterly futures contracts. For instance, a trader can maintain a short position indefinitely until they are liquidated.
Given that perpetual futures contracts never settle in the traditional sense, exchanges need a mechanism to ensure that futures prices and index prices converge regularly. This mechanism is also known as Funding Rate/Fees.
Funding fees are periodic payments made either to long or short traders based on the difference between perpetual contract market prices and spot prices. Therefore, depending on their open positions, traders will either pay or receive funding.
In contrast, quarterly contracts do not entail a funding fee. This is advantageous for long-term position traders and hedgers, as funding fees can fluctuate over time. Particularly in extreme market conditions, high funding fees can become expensive for maintaining a long-term market position.
For instance, funding fees in BTC perpetual markets may surge as BTC prices rally, indicating an imbalance of buying pressure in the market. Consequently, this effect leads to long positions becoming more expensive to hold as time goes on.