Perpetual Futures Strategies

Understand the Source of the Return

A strategy should explain why a profit may exist, what conditions it depends on and which risks remain after the position is opened.

Some strategies depend on market direction. Others attempt to reduce an existing exposure, capture differences between markets, collect funding payments or earn spreads by providing liquidity.

None removes risk. A trade can still be affected by fees, funding changes, slippage, liquidation, exchange failure, smart-contract problems or an inability to close both sides at the expected price.

The Main Types of Perpetual Futures Strategies

Directional trading

Takes a long or short position with the aim of benefiting from a market move.

Hedging

Uses a perpetual position to reduce the risk of another holding, portfolio or source of revenue.

Arbitrage and market-neutral trading

Looks for differences in spot prices, perpetual prices, futures prices or funding rates while attempting to limit directional exposure.

Market making

Places buy and sell orders to earn spreads or incentives while managing inventory and adverse-selection risk.

Automated trading

Uses software to place and manage orders according to predefined rules. Automation can improve execution, but it cannot turn a weak strategy into a profitable one.

Before Using a Strategy

Understand contract mechanics first. Then calculate the expected return after fees, funding, spread, slippage and possible borrowing or network costs.

A strategy that appears profitable before costs may be unprofitable after execution. A market-neutral position can retain exchange, collateral, basis and liquidation risk.