Just like in TradFi, futures can be used to speculate.
If a trader is bullish on ETH, she will go long (agrees to buy).
If a trader is bearish on ETH, she'll go short (agree to sell).
With cPerps, differently from dated futures, traders are subjected to the unpredictability of the funding rate (the APY), which can be positive or negative depending on the underlying lending profits and borrowing costs.
For instance, if a trader went long on ETH/DAI and after a week ETH price has gone up in DAI terms, she can close her position and earn a profit if the cost of keeping her position opened until then is lower than the gains from ETH price appreciation.
On Contango, the APY is accrued as part of the PnL so traders can always monitor their costs.
Hedging is a strategy to protect one's investment from exposure to price risk.
Hedging an investments normally implies taking the other side of the market, e.g. go long on an asset, go short on the derivative contract on that same asset. That way any loss on one side if offset by a gain on the other side - meaning you're effectively market-neutral.
Hedging with a perp implies having a variable cost. For instance, a trader could buy ETH on the spot market and stake it to earn staking rewards, while shorting it with a perp on Contango. After some time, regardless of the ongoing spot price, she closes her position. If the variable cost of hedging (the APY) was lower than the rewards, she made a profit. Also, if the APY on ETH is positive, then a trader could collect (read: receive) the basis rate when shorting.
As with spot markets, perp markets can be arbed too. There are 3 different scenarios:
☝️CeFi / DeFi
We’re the first protocol that uses money markets to price our futures, so expect some price difference with CeFi perps, e.g. on Binance. But that’s good news! That’s a free lunch for anyone interested in arbitraging.
✌️DeFi / DeFi
Again, we’re the first protocol that uses money markets to price perps, so there could be price discrepancies with other DeFi perp protocols.
🤟 Rates arbitrage
The most famous arbitrage between spot and perp markets is called "cash and carry" trade.
At a high level, two positions should be opened on opposite sides, on the spot and on the perp market. Because of how shorts work on Contango, doing a classic cash and carry with a spot leg is equivalent to just lending the quote currency. So, to make it worthwhile, the other leg of the trade should have some leverage in it, either by tasking the opposite side on another perp venue or -even better- on another market on Contango (so you can easily monitor both legs on the same interface).
The most detailed explanation of the cash and carry trade is stillAll aboard!by Arthur Hayes. If you haven't read it, stop whatever you're doing now and go read it.