Michael Selig decided Americans deserve the right to trade perpetual futures contracts at three in the morning while drunk. The CFTC chair defended this decision by explaining that incumbents fear the future. He's right. Banks looked at perps and thought, "What if we let people get liquidated without the courtesy of an expiration date?"
Selig wants to develop the asset class domestically rather than offshore. Patriotic. Nothing says American exceptionalism like bringing predatory leverage products home where they belong. Why should Seychelles-based exchanges have all the fun watching retail accounts evaporate in real time?
Perps let you hold a leveraged position indefinitely through a funding rate mechanism. Every eight hours you either pay or receive a small percentage based on whether you're long or short. It's like paying rent to keep your bad trade alive. Landlords charge monthly. Perps charge you three times a day.
The beauty of perpetual contracts is they never settle. Regular futures expire. You take your loss and move on. Perps let you hemorrhage money forever. It's the financial equivalent of keeping a dying plant on life support because you're too stubborn to throw it away.
Incumbents do fear this product. They remember when derivatives were boring. They remember when leverage required a phone call and a margin agreement. Now you can 100x your net worth on a coin named after a dog with four clicks and zero friction.
Selig thinks bringing perps onshore protects investors. He believes U.S. regulation will somehow prevent people from discovering that leverage works both ways. It won't. The same guy who revenge-traded his way through $8,000 in stock options will simply move to perps and lose $8,000 faster while paying funding rates for the privilege.
Photo by on Unsplash
Leave a Comment