Customers have the option to trade perpetuals using leverage. This means that the capital required to trade a perpetual is significantly less than the total notional value of the underlying asset. However, this also means that the customer may lose all of this funding capital should the market move against them. Therefore, trading perpetual contracts presents a liquidation risk.
In order to maintain the integrity of the derivatives platform, users of perpetuals are subject to an auto-liquidation feature. This means their positions will be automatically closed once the risk of the position is too high compared to the funds available to support it. Cryptocurrencies are volatile and leverage will amplify this volatility, meaning losses can be quickly accumulated.
Perpetuals are specific to a platform and cannot be moved or traded on another exchange - positions have to be closed on the platform.
Key Risks of trading perpetuals:
Perpetual contracts risks |
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|---|---|---|
| Risk | Risk Description | Risk Disclosure Wording |
| Market Risk (price volatility) | Cryptoassets are inherently volatile. Perpetual futures amplify this exposure because they are leveraged instruments. Price swings can be sharp and unpredictable, influenced by sentiment, regulation, macroeconomic factors, and market manipulation. | Cryptoasset prices are highly volatile and may result in sudden and significant losses. Leveraged positions in perpetual futures amplify this volatility, increasing the likelihood of rapid losses. Investors may lose more than their initial margin. This product is not suitable for all investors. |
| Leverage Risk |
Perpetual futures allow users to take on positions significantly larger than their collateral through leverage. While this can magnify gains, it also greatly increases the potential for losses, especially during adverse price movements. |
Using leverage increases your exposure to the underlying cryptoasset, and even small adverse price movements can result in the liquidation of your position. You may lose all your collateral and, depending on the platform, may be liable for additional losses. |
| Liquidity Risk |
Crypto markets can experience thin order books or rapid drops in liquidity during periods of stress. This could result in slippage or inability to exit a position at a favorable price. |
Market liquidity may deteriorate rapidly during periods of volatility. This could prevent you from closing your position at the expected price, potentially increasing losses. |
| Counterparty/Custodial Risk | Trading on centralized platforms exposes users to the risk that the exchange or clearing entity could become insolvent, be hacked, or otherwise fail to meet its obligations. | When trading perpetual futures via a centralised platform, you are exposed to the solvency, operational, and security risks of that platform. Your funds may not be segregated or protected under deposit guarantee schemes. |
| Liquidation Risk |
Exchanges typically use automated liquidation engines. If the market moves quickly against a trader's position, partial or full liquidation can occur without manual intervention. |
You may be liquidated automatically if your margin balance falls below maintenance requirements. This can occur even during brief price spikes, and partial liquidations may occur at unfavorable prices. |
| Funding Rate Fluctuations |
Perpetual futures employ funding rate mechanisms to maintain price parity with the spot market. These rates can be unpredictable and create additional costs for holding a position. |
Funding rates may vary over time and create additional costs or credits, depending on market conditions. These charges can significantly impact your position profitability, particularly over longer holding periods. |