Perpetual Contracts Eye U.S. Stocks: Leverage Risks May Amplify Volatility
0xBroomberg
Perpetual contracts — already dominant in crypto trading — are seeking entry into the US stock market, offering up to 100× leverage where a 1% move can wipe a position. Regulators and legacy exchanges face a shared dilemma.
What are perpetual contracts, and why do they matter?
Perpetual contracts — derivatives with no expiry date, where the counterparty is another trader rather than a central clearinghouse — already dominate crypto trading.
This means → they technically fall outside the definition of "futures," yet can deliver up to 100× leverage. A 1% drop in the underlying asset zeroes out a fully leveraged position.
These products already operate offshore. The Trump administration is open to letting them into the US market.
Why is CME pushing back — is it really about investor safety?
The Chicago Mercantile Exchange (CME) has explicitly opposed US-market entry for perpetual contracts, citing investor safety. Tim McCourt, CME's head of global financial and OTC products, said the exchange's own single-stock futures plan has been years in the making.
In plain terms = CME's objection is not purely altruistic — perpetual contracts also threaten its near-monopoly in related markets.
CME's single-stock futures trade 23 hours a day, offering leverage above margin lending but below the most aggressive options products. This reflects CME trying to hold a niche between "enough leverage" and "safe enough."
What has gone wrong with high leverage before?
According to the *Wall Street Journal*, high leverage was the core driver of cascading liquidations during last October's crypto sell-off — wiping out traders and draining exchange insurance funds when clients could not cover losses.
US equity leverage limits have been built up since the 1930s. Current margin borrowing is at a record high, yet still below the levels that bankrupted investors before the 1929 crash.
In plain terms = it took nearly a century to erect the current leverage guardrails. Perpetual contracts would open a new lane outside those guardrails entirely.
What does this mean for ordinary investors?
Tim Quast, CEO of market-structure firm ModernIR, argues that even if institutions avoid perpetual contracts, the products could be powerfully attractive to retail speculators — who tend to chase the highest available leverage.
This means → the real risk extends beyond direct participants: during a sharp downturn, concentrated liquidation of high-leverage positions could ripple into broader portfolios.
This reflects a deeper problem: the gap between retail investors' migration toward ever-riskier products and regulators' ability to keep pace is widening.
Content is for reference only, not financial advice.