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Futures trading is one way crypto traders take advantage of the volatile nature of cryptocurrencies to make profits. Predicting the price movement of crypto assets can be fun and also risky. Delivery contracts are one type of futures contract that traders can take advantage of.
This article discusses delivery contracts, how they work, and the difference between them and perpetual contracts.
The delivery contract is a type of futures contract in which two parties agree to trade at the futures price at a certain point in time. The terms of the contracts are time-sensitive. This means that the predictions of price changes must be made within the time specified in the contract.
The delivery of a contract involves specific transactions on the futures market. Based on your analysis, you can go long or short on your trading positions, and your contract will expire after a certain period. As soon as the expiry date is reached, the contractual conditions will be settled according to the current state of the cryptocurrency market.
The delivery date of the contract and the expected price changes are the two core components of the delivery contract. Time and price movement determine the execution of the contract and make sure that the parties involved in the contract agree on the terms and conditions stated in the contract.
There are a few benefits to using delivery contracts. One of such benefits is that traders can maximize their trading profits through leverage, stop loss, and other avenues. Traders can also get their profits at any time designated in the contract. Traders can settle for profits within a quarter or within the next quarter delivery.
One more benefit is that traders do not have to deal with daily funding fees with delivery contracts. This makes them a cheaper route towards enjoying futures trading gains, especially when compared to other options such as perpetual contracts.
Delivery contracts are classified into four groups based on their delivery time. They include;
Current Week Delivery Contract: This is a short-term delivery contract that is completed within a week. It's usually delivered on the Friday of the current week.
Next Week Delivery Contract: The next-week delivery contract is the same as the current one, but with an extension. The delivery takes place the following week after the trader creates the contract.
Current Quarter Delivery Contract: In this contract, traders must dictate the contract within the delivery date every quarter of a year. The delivery date could be at the end of March, June, September, or December.
Next Quarter Delivery Contract: In the next quarter delivery contract, the delivery contract takes place in the next quarter. If a trader opens a contract during a certain quarter, the next quarter will be the delivery date.
Although perpetual contracts and futures contracts are derived from Bitcoin futures contracts, there are some differences between perpetual contracts and delivery contracts.
One of these differences is the time factor. In contrast to delivery contracts, perpetual contracts have no time limit. As a trader, you can open perpetual contracts for as long as you want. However, a delivery contract is settled at the time agreed in the contract.
The core component of a delivery contract is its time factor. If the time specified in the contract is exceeded, the delivery contract expires. Once the contract expires, it is settled based on the situation in the crypto market, and a settlement fee is automatically applied.
Another difference is the settlement fee after the delivery contract has expired. The settlement fee in the delivery contract varies from contract to contract. However, there is no one-time settlement fee for perpetual contracts.
Binance currently offers quarterly delivery contracts on the platform. Traders can create and settle contracts at a defined delivery date every quarter of the year.
For example, opening a quarterly BTC/USDT contract requires holding some BTC as a margin. Settlement of this type of contract uses the underlying asset. Therefore, when the contract expires and a profit is realized, the profits will add to the BTC you hold on the exchange.
The settlement fee is automatically deducted when Binance's delivery contract expires based on the prescribed buyer fee. The settlement price is usually the current market price when the contract expires. The exchange deducts the settlement fee from the realized profit and loss and transfers the remaining part to the trader's margin account.