Drift Protocol v2

โŒ˜K
๐Ÿ‘พWelcome to Drift Protocol
๐ŸงฎDrift DEX
๐Ÿ‘‹Getting Started
๐Ÿ“ˆPerpetual Futures
๐Ÿ“ŠSpot Margin Trading
๐ŸฆBorrow & Lend
๐Ÿ›๏ธStaking
๐Ÿ”ฌTechnical Explanations
๐Ÿ“Accounting and Settlement
โž—Borrow Interest Rate
๐Ÿ“œDelisting Process
โ›ฒDrift AMM
๐ŸƒJust-In-Time (JIT) Auctions
๐Ÿ“šKeepers & Decentralised Orderbook
โ˜ ๏ธLiquidators
๐Ÿ’งLiquidity Providers (LPs)
๐Ÿ“‹Protocol Guard Rails
๐Ÿ“Risks
๐Ÿ–ฅ๏ธDeveloper Resources
๐Ÿ“”Overview
โŒจ๏ธSDK Documentation
โŒจ๏ธTutorial: Bots
โš ๏ธTroubleshooting
๐Ÿ› ๏ธKeeper Bots
๐Ÿ› ๏ธTrading Bots
โŒจ๏ธHistorical Data (v1)
โŒจ๏ธAPI
๐Ÿ›ก๏ธSecurity
๐Ÿ›ก๏ธAudits
๐Ÿ›ก๏ธBug Bounty
โš–๏ธLegal and Regulations
๐Ÿ“Terms of Use
๐Ÿ“Disclaimer
๐Ÿ“Privacy Policy
๐Ÿ“Competition Terms and Conditions
๐Ÿ“šGlossary
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16min

What are Perpetual Futures?

Note: The terms 'Perpetual Swaps' and 'Perpetual Futures' are interchangeable. They refer to the same product.

What are Perpetual Futures?

Perpetual futures are a type of derivative instrument. The value of a perpetual futures position comes from the price of its underlying index or asset (usually a spot trading market).

Perpetual futures are the most liquid derivative instrument in decentralised finance and it accounts for more volume than their spot market counterparts.

Why use Perpetual Futures?

Perpetual futures can be used for three main purposes:

  1. Hedging - insuring against uncertain price movements or asset exposure. You can easily long or short perpetual futures.
  2. Speculating - speculating on particular assets or markets, including with leverage.
  3. Access - liquid access to markets and assets that would otherwise be more difficult to trade (e.g. commodities and trading indexes).

Hedging

Perpetual futures can be used to hedge your exposure to particular assets and insure against market volatility.

Example 1:

  • ๏ปฟYou bought SOL at $55 and it now sits at $80 dollars๏ปฟ
  • You believe SOL's fair value to be $120 and you don't want to sell just yet
  • But at the same time, you think that there'll be a short-term pullback in price and want to lock in some profits in the meantime

What can you do?

You can take a short position at $80 using a SOL-PERP contract to hedge against the spot SOL you hold.

If the pullback happens and SOL drops to $60 dollars, then your SOL-PERP position will be in profit and you would have locked in your profit from when SOL was at $80 dollars without having to sell your SOL.

This puts you in a comfortable position whilst waiting for your SOL target of $120.

Speculating

Perpetual futures lets you speculate on whether the price of an asset will go up or down. This is accomplished via longing and shorting perpetual futures.

Longing & Shorting

If you believe that the price of an asset will decrease, you can short it using perpetual futures contracts โ€” and when you believe that the price of an asset will increase, you can long it using perpetual futures contracts.

  • Shorting means you are speculating on the price of the asset going down.
  • Longing means you are speculating on the price of the asset going up.

Example 1:

  • The current price of SOL is at $100 and you believe it's overvalued

What can you do?

You can take a short position using SOL-PERP to bet against the price of SOL. This means you will make money if the price of SOL goes down and you will lose money if the price of SOL goes up.

If the price of SOL decreases to $80 and you shorted it at $100, then you will have made money and will be in profit.

Example 2:

  • The current price of SOL is $100 and you believe it's undervalued

What can you do?

You can take a long position using SOL-PERP to bet on the price of SOL. This means you will make money if the price of SOL goes up and you will lose money if the price of SOL goes down.

If the price of SOL increases to $120 and you longed it at $100, then you will have made money and will be in profit.

๏ปฟLeverage๏ปฟ

Trading perpetual futures contracts also gives you access to leverage.

Leverage allows you to increase the exposure you have to a particular asset with the same amount of collateral. This increases your exposure to both the upside and the downside of your position.

Example 1:

  • The current price of SOL is $100 and you believe it's undervalued.
  • You have $1,000, but think this is not enough. You have high conviction and want more exposure.

What can you do?

You can take a long position using SOL-PERP to be for the price of SOL to go up. However, you can also use 10x leverage on your $1,000 collateral - bringing your total collateral size to $10,000.

You now have a $10,000 long position on SOL-PERP.

This means that if the price of SOL goes up by 1%, your position will be in profit by 10%.

This also means that if the price of SOL goes down by 1%, your position will be down by 10%.

If however, the price of SOL goes down by 10%, this means your underlying position will go down by 100%, and you will be liquidated.

For more information on liquidations visit Liquidations.

Updated 18 Nov 2022
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How to Trade Perpetual Swaps
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TABLE OF CONTENTS
What are Perpetual Futures?
Why use Perpetual Futures?
Hedging
Speculating
Leverage