Ten years ago, BitMEX launched the first perpetual futures (“perps”) for cryptocurrencies. Today, these derivatives drive most of the world’s crypto trading volume.
Several overseas platforms subsequently launched equity perps for individual stocks, and the CFTC greenlit their trading in the U.S. in early November. On the surface, equity perps resemble stock options without expiration dates. But let’s dig deeper to see how these derivatives might shake up the market once they’re more broadly adopted.
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What are perpetual futures?
Single-stock perps are simpler than options. In traditional options trading, an investor buys a contract to either buy a stock (a call) or sell it (a put) at a fixed price at a future date.
With a perp, an investor simply takes a bullish or bearish position in a stock, deposits cash as collateral, and chooses a leverage ratio that amplifies their gains or losses. If you deposit $100 at 10x leverage, you’ll gain $1,000 exposure to an underlying stock.
If the underlying stock price starts at $100 and rises 10% to $110 per share, your leveraged position grows to $1,100 — which gives you a $100 profit on your $100 deposit. If it declines by 10% to $90 per share, your position shrinks to $900, resulting in a $100 loss. The platform is set to automatically liquidate your entire position before it wipes out your deposit.
To pin the perp’s price to the underlying stock without strike prices or expiration dates, buyers and sellers pay each other funding fees. Whenever the contract trades at a premium to the stock, the longs pay the shorts; when it trades at a discount, the shorts pay the longs.
Which brokerages could adopt equity perps in the U.S.?
The simpler mechanics, lack of expiration dates, and use of leverage can make perps more appealing than traditional options. That’s why we’ve seen more trading platforms in the U.S. adopt them after the CFTC cleared them for trading under a joint framework with the SEC.
Kalshi, which is best known as a prediction market, became the first CFTC-regulated exchange to launch single-stock perps in early November. It allows traders to take long or short positions in over 50 individual stocks — including Meta, Palantir, and McDonald’s — as well as entire indexes like the S&P 500 (SNPINDEX: ^GSPC).
Intercontinental Exchange (NYSE: ICE), the parent company of the NYSE, also recently invested in TradeXYZ to bring regulated perps to U.S. traders. Charles Schwab (NYSE: SCHW), which already offers single-stock futures (special options that expire quarterly), could also easily make that transition since it’s already registered with the CFTC and SEC.
Robinhood (NASDAQ: HOOD) launched crypto perps in the U.S. this September, but it hasn’t announced any plans to roll out single-stock perps. Larger brokerages, including E*Trade from Morgan Stanley, are still generally sticking with traditional options.
How could equity perps shake up the market?
Brokerages thrive when investors trade actively rather than sit on their investments. That’s why many of them benefited from the meme stock mania in 2020 and 2021, but struggled when rising interest rates chilled the stock and crypto markets in 2022 and 2023.
We’re in a similar situation today. The Fed raised its benchmark rates for the first time in three years this September, and more rate hikes could be in the cards if inflation doesn’t cool down.
Therefore, integrating equity perps could give investors a fresh reason to actively trade in this choppy market. Like options, they also require a smaller upfront investment than stocks.
However, several Wall Street trade groups — including the Capital Markets Alliance Association (CMAA), which includes Cboe and Citadel Securities — have filed lawsuits to block equity perps. Those legacy institutions argue that the CFTC overstepped its authority by fast-tracking their domestic approval, and that equity perps should have much stricter margin, capital, and reporting requirements to protect retail investors. Those legal hurdles could prevent the major U.S. brokerages from launching equity perps anytime soon. However, they could still shake up the market and disrupt traditional options trading once they finally arrive.
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Charles Schwab is an advertising partner of Motley Fool Money. Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Palantir Technologies. The Motley Fool recommends Charles Schwab, Intercontinental Exchange, and Robinhood Markets and recommends the following options: long January 2028 $320 calls on McDonald’s, short January 2028 $340 calls on McDonald’s, and short September 2026 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.
