Comment Text:
For the stock market, perpetual contracts can introduce instability and excessive volatility. Their popularity among speculators can drive trading detached from a company’s fundamental value, causing erratic price swings. If used for aggressive shorting, these contracts could exert downward pressure on stock prices, potentially hindering companies’ ability to raise capital and undermining investor confidence. Moreover, in less regulated markets, retail investors face additional dangers such as platform failures, counterparty risks, and limited legal recourse. These factors collectively make perpetual contracts a perilous choice for retail investors and a potential threat to the stability of the stock market.
High leverage, a hallmark of perpetual contracts, could attract speculative trading, leading to amplified price swings and destabilizing stock prices, especially during periods of market stress. The influx of speculative trading driven by high leverage could distort stock prices, making them less reflective of a company’s fundamental value. This could hinder companies’ ability to raise capital and undermine investor confidence, particularly if retail investors, who may not fully grasp the risks, participate heavily. For example, the potential for increased volatility could lead to erratic price movements, as seen in cryptocurrency markets where perpetual contracts dominate trading activity.
