Comment Text:
Perpetual contracts can pose significant risks to the stability of the stock market. Their widespread use among speculators may lead to trading activity that diverges from the underlying fundamentals of companies, resulting in unpredictable and volatile price movements. When employed for aggressive short selling, these contracts can put downward pressure on stock prices, potentially impairing companies’ ability to secure funding and eroding investor trust. In less strictly regulated environments, retail investors face even greater hazards, including platform instability, counterparty defaults, and limited avenues for legal recourse. Taken together, these risks make perpetual contracts a dangerous option for individual investors and a destabilizing force in equity markets.
One of the defining features of perpetual contracts is their high leverage, which often draws in speculative traders. This leverage can magnify price fluctuations and destabilize stock valuations, particularly in times of market turbulence. The surge in leveraged speculation may lead to price distortions, making market valuations less aligned with a company’s actual financial health. This not only complicates capital-raising efforts for businesses but also shakes investor confidence—especially if retail participants, who may not fully understand the risks involved, are heavily engaged. The pattern of extreme volatility driven by perpetual contracts is already evident in cryptocurrency markets, offering a cautionary example of how such instruments can amplify instability.
Perpetual contracts pose significant risks to stock markets. They are clearly abusing them to manipulate stock prices (GME)and we need accountability NOW!
