What is a "perpetual swap"?
- In cryptocurrency exchanges, there is a financial product called "perpetual swap". (It is also called as "perpetual futures" or "perpetual contracts" as well)
- It is a kind of futures, except the fact that it does not have a delivery date. That is why it is "perpetual".
- To make the perpetual swap follow the price of that of spot market, we have "funding rate", which is an exchange of interest between long side and short side based on how much futures price deviates from that of spot market. For more detailed explanation, you can refer to Bitmex's information page.
Can I achieve 'market neutrality' with perpetual swaps and quarterly futures?
- If I buy 1 BTC from a spot market and short it in a perpetual swap market, my position to BTC is neutral because the 1 BTC long and 1 BTC short cancel out. Can I do the same thing with quarterly futures (instead of spot) and perpetual swap?
- The first problem that came to my mind was that the basis between quarterly futures and that of perpetual futures will gets smaller as time passes by. And at the maturity date of the quarterly futures, the basis would be the smallest. (The assumption is that the price of perpetual futures closely follows that of spot.) So if I long quarterly futures, the loss from quarterly futures' long position seems to make it impossible to have 'market neutrality'. One example is provided below.
- Is there a way to be neutral to market by long quarterly futures (instead of spot) and shorting perpetual swap? The reason that I would like to short perpetual swaps is that if you long perpetual swaps, you usually need to pay the funding fee, which is expensive.