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October 13, 2021

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

Thank you for reading!

Don't forget to come into the app tomorrow to continue learning about crypto! 

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