What Are Perpetual Contracts (Derivatives)

Spot trading involves directly buying and holding cryptocurrencies like Bitcoin, while another type of trading asset allows you to profit from price fluctuations without actually owning the cryptocurrency. These assets essentially let you bet on whether the price will go up (go "long") or down (go "short").

When trading perpetual contracts on NodeXX, you are essentially entering into an agreement with a counterparty holding the opposite position. If you open a long position betting that Bitcoin’s price will rise, someone else is short, betting the price will fall. When either party closes their position, they either pay the price difference as a loss or receive the price difference as a profit.

Example: If you open a BTCUSDT long contract position worth 100,000 USDT when Bitcoin’s price is 100,000 USDT, it’s equivalent to owning one Bitcoin and betting the price will rise. If Bitcoin’s price rises to 110,000 USDT and you choose to close your position, you will earn a profit of 10,000 USDT. Conversely, the person shorting in this scenario will lose 10,000 USDT.

What makes perpetual contracts especially attractive is leverage. NodeXX allows you to control a larger position size with your initial investment.

Example: To open the same 100,000 USDT position, you can use only 10,000 USDT as margin with 10x leverage. This means that if Bitcoin rises to 110,000 USDT, even though you initially invested only 10,000 USDT, you can still earn a profit of 10,000 USDT.

However, when holding spot Bitcoin, the price must drop to zero for you to lose all your funds, whereas with 10x leverage, a price move against you by a certain percentage will trigger a forced liquidation. The higher the leverage, the smaller the price movement required to trigger liquidation. To learn more about the liquidation mechanism, please see our *“What Is Forced Liquidation?”* guide.

Because perpetual contracts can be held indefinitely, they use a mechanism called the funding rate to keep their price aligned with the actual cryptocurrency price. The funding rate can be understood as a balancing system. When most traders bet on the price going up (long), they pay a small fee to those betting on the price going down (short), and vice versa. This helps keep the perpetual contract price closely linked to the actual cryptocurrency price.