What is a perpetual swap contract?
A perpetual swap contract is a derivative instrument. A derivative is a financial instrument who's value is tied to another asset or assets. For example, the DeFi index on Ember is a derivative instrument tied to the performance of the DeFi tokens that make up the basket. Derivatives can also be contracts between two or more parties.
Now back to perpetual swaps:
A perpetual swap is a contract between parties that allows them to buy or sell an asset of value in the future. Perpetual swaps have many advantages including:
- Trading with leverage (margin)
- Don’t need to own the asset to sell it (no custody needed, borrowing from counterparty if you sell an asset you don’t have - short position)
- Positions can be kept open, forever (i.e. perpetually)
-Harsharn Singh, Investment Associate @ Ember Fund
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