The Purpose of Perpetual Contract

THE PERPETUAL CONTRACT

The purpose of the Perpetual Contract is to provide years of futures price history in one continuous time series. That is accomplished by constructing a time series based on a constant forward time period. For example, the series would determine a value three months or six months into the future. The time period varies and can be chosen by the user. The Perpetual Contract is constructed by taking a weighted average of two futures contracts that surround the time period desired.

The value for the Perpetual Contract is not an actual price, but a weighted average of two other prices. The main advantage of the Perpetual Contract is that it eliminates the need for using only the nearest expiring contract and smoothes out the price series by eliminating the distortions that can take place during the transition between delivery months. For chart analysis purposes, the nearest-month continuation charts published by chart services are more than adequate. A continuous price series, however, is more useful for back-testing trading systems and indicators.