PERPs (perpetual futures)

[Saluki]

This came up in another post, but deserves it's own post. 

 

Why CME Is Really Suing the CFTC Over Perps

 

Anyone have any comments or questions about it? Feel free to chime in and if helpful, I'll answer legal questions from the perspective of a derivatives lawyer

 

 here's my take: 

 

• Perps ARE swaps, not futures.
• The CME wants them regulated as swaps because they are set up to trade (and clear) futures AND  swaps and the newcomer exchanges, like Kalshi, are set up for futures only, so classifying them as swaps would cut down the pool of potential competitors
• The CFTC called them futures because of regulatory capture (Trump Jr is a paid "advisor" to Kalshi and Polymarket) and to keep out defi protocols like Hyperliquid.
  • swaps can be traded off-exchange or on-exchange, but futures must be on-exchange. so by calling them futures, you make protocols like Hyperliquid illegal in the US. 
  • The license Kalshi has lets them do futures too, not just prediction markets
• Most exchanges don't trade 24/7 which is one of the reasons why some of them see Perps as a threat.
• Perps are easier to understand than options, so market heavyweights think it will suck retail order flow into these products

[thowed]

This is worth a read (if you can get over the paywall):

 

https://www.ft.com/content/b7a788de-0f31-4b31-992b-45ddf92ccdcb

 

I mean, I don't want to be too much of a doomer, but it's a cycle isn't it:

 

1) Relax rules and let people buy homes who can't afford them because they only go up.

2) Relax rules and let people violently speculate on the stockmarket, because it only goes up.

[TwoCitiesCapital]

I tend to agree that perpetual futures are more akin to swaps than they are futures given the funding mechanism being an explicit accrual/exchange of cash on a daily basis with hourly accruals. 

 

I think they're a superior product to futures with the little experience I have trading them, but wouldn't mind if they were labeled 'perpetual swaps' instead. 

[lnofeisone]

I also think they are swaps. They walk like swaps and quack like swaps. I haven't traded them but have looked at them and I think they are incredibly dangerous for retail investor. If you own calls and the underlying drops like a rock, you lose the value of the call. If you own one of these perps, you might find yourself completely wiped out.  Never mind the funding rate, which can eat away at the gains.

[TwoCitiesCapital]

I wouldn't say they're anymore dangerous than futures which are also available to retail. 

 

But is dependant on how much leverage the provider allows. 

 

Coinbase gives me perpetual swaps on Sunil leverage ratio terms to normal CME futures. But there are other crypto exchanges that have historically offered 100:1 leverage which is dangerous regardless of what you're trading. 

[SharperDingaan]

These things are just a swap with no expiry date, and a more frequent settlement schedule.

 

But the real market isn't predictions, it's the institutional ALM market. Create a 'unit' with  a nominal face value of 1,000 and a nominal term of 1,000+ (proxy for infinity) .... and you have a zero coupon bond with a duration of 1,000+ . Duration x change in yield between MTM intervals = MTM settlement. A duration of 1,000+ ..... multiple times higher than today's typical leverage. Viscous little bastards  .....

 

SD

Edited 14 hours ago by SharperDingaan

[thowed]

Another (free) very interesting article, on Hyper.

 

Well written, so tempted to believe the hype, but am sure there are issues not mentioned.

 

https://colossus.com/article/beyond-the-sky-jeffrey-yan-hyperliquid/

[schin]

I have tested a Kashi and Polymarket account... and their infrastructure for customer service is not that great. Especially, when you're trying to deposit, cash out, there can be some latency. I am not talking about minutes. I'm talking about unsettle or uncleared what my profit/loss is in days and weeks.

 

So, i worry about counterparty risk or just making sure the books balance out.

 

There is no customer service number is a huge issue. You're on your own and it could go against you.

[Spekulatius]

What prevents traditional exchanges to get into the betting market business. It’s legally a different domain

1 hour ago, thowed said:

Another (free) very interesting article, on Hyper.

 

Well written, so tempted to believe the hype, but am sure there are issues not mentioned.

 

https://colossus.com/article/beyond-the-sky-jeffrey-yan-hyperliquid/

 

Quote

A perp is a bet on the price of an asset you never own, and unlike a traditional future, it never expires. The market for these bets is six to eight times larger than the one for buying and selling the assets themselves, roughly $7 trillion a month, and until recently, virtually all of it ran through centralized exchanges. The biggest, by far, was Binance. 

This is exactly the definition of a bucket shop.