Perpetual FuturesPerps
Perpetual futures are futures contracts with no expiry date, kept close to the spot price by regular funding payments between longs and shorts.
Perpetual futures — “perps” — are the most traded instrument in crypto. They behave like a futures contract that never expires: you can go long or short with leverage and hold for as long as your margin lasts. Instead of converging to spot at expiry, they are tied to the spot price by funding payments between buyers and sellers. This entry explains how perps work, what you pay to hold them, and why liquidation is the risk that matters most.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 6 min
- Also called
- Perpetual swap, Perpetual contract, Perpetuals
- Updated
Perpetual futures in plain words
A perpetual is a contract that tracks the price of an asset such as Bitcoin. Because it has no expiry date, it cannot converge to the spot price through settlement; instead, periodic payments between long and short holders pull its price towards spot.1 See Funding Rate.
You trade it with margin: a deposit that is a fraction of the position’s value. Gains and losses accrue continuously, and if losses eat through the margin, the exchange closes the position — a liquidation.2 See Liquidation.
How a perpetual futures trade works, step by step
Choose margin mode and leverage
Isolated margin limits risk to the margin assigned to the position; cross margin shares the whole balance. Leverage sets how much margin the position needs. See Cross and Isolated Margin.
Open long or short
Long gains if the price rises; short gains if it falls. Both sides are equally easy to open.
Watch the mark price
Exchanges use a mark price derived from wider market data — not the last trade — to value positions and trigger liquidations.2
Pay or receive funding
At each funding interval — on most platforms every eight hours — longs pay shorts when the rate is positive and shorts pay longs when it is negative.1
Monitor margin
Your margin balance is the wallet balance plus unrealised profit or loss; if it drops below the maintenance requirement, liquidation is triggered.2
Close when ready
There is no expiry; you close by taking the opposite side. Use a stop-loss well before the liquidation price. See Stop Loss.
Worked examples
Example 1 — A leveraged long
10×Bitcoin is at $60,000. A trader opens a $30,000 long with $3,000 of margin (10× leverage). The price rises 4%.
| Gain on $30,000 | +$1,200 |
| Return on margin | +40% |
A 4% move became a 40% return on the margin — and a 4% move the other way would have cost 40%. See Leverage.
Example 2 — Funding over a month
FundingThe same $30,000 long is held for 30 days while funding averages +0.01% per eight-hour interval (three times a day).
| Per interval | $30,000 × 0.01% = $3 |
| Per day | 3 × $3 = $9 |
| Over 30 days | ≈ $270 paid |
| As % of $3,000 margin | ≈ 9% |
Funding is calculated on the full position, not the margin, so it adds up on leveraged positions held for weeks.1
Example 3 — Liquidation distance
LiquidationAt 10× with isolated margin, the position has $3,000 of margin. The maintenance requirement is about 0.5% of the position ($150).
| Loss the margin can absorb | $3,000 − $150 = $2,850 |
| As a price move | $2,850 ÷ $30,000 = 9.5% |
| Approximate liquidation price | $60,000 × (1 − 0.095) ≈ $54,300 |
A 9.5% dip — common in crypto — liquidates the position. Exchanges’ estimated liquidation prices change and are for reference only.3 Fees and funding move them closer.
How funding keeps a perpetual near spot
Perpetual vs. dated futures
| Aspect | Perpetual futures | Dated futures |
|---|---|---|
| Expiry | None | Fixed date |
| Link to spot | Funding payments1 | Convergence at expiry |
| Holding cost | Funding, paid or received each interval1 | Built into the price (basis) |
| Where traded | Mostly crypto exchanges | Regulated futures exchanges, and crypto exchanges |
| Rolling | Not needed | Needed to keep a position open |
Why traders use perpetuals
Leveraged directional trades
Going long or short with margin, without owning the coin.
Shorting crypto
Perps are the simplest way to profit from falling crypto prices. See Short Selling.
Hedging
Holders of spot crypto can short perps to reduce exposure without selling. See Hedging.
Funding arbitrage
Holding spot and an opposite perpetual can capture funding, with basis, liquidation and rate-reversal risks.1
Advantages and disadvantages
Advantages
- No expiry, so no rolling.
- Deep liquidity on major exchanges.
- Long or short with the same ease.
- Capital-efficient margin.
Disadvantages
- High leverage makes liquidation easy.
- Funding can be a significant cost over time.
- Mostly offered by crypto exchanges; regulation and protections vary widely.
- Extreme volatility can cause cascading liquidations.
Going deeper
Read as far as you need. Each level builds on the one before it.
Leverage is a setting, not a requirement
Beginner
You can trade perps at 1× or 2×. Lower leverage means a more distant liquidation price and smaller funding relative to your margin.
Mark price, index price and last price
Intermediate
The last price is where the perp last traded; the index price is an average of spot prices on several exchanges; the mark price, used for valuations and liquidations, is derived from the index to resist manipulation by single trades.2
Insurance funds and auto-deleveraging
Advanced
When a liquidated position cannot be closed at a price that covers its losses, exchanges draw on an insurance fund.2 In extreme moves, some exchanges reduce profitable opposite positions automatically (auto-deleveraging). Read your exchange’s rules before trading size.
Common mistakes
Using maximum leverage
High leverage puts the liquidation price within normal daily swings.
Ignoring funding
Holding a crowded long for weeks can cost more in funding than the trade makes.
No stop-loss
Relying on liquidation as a stop loses the whole margin plus fees. See Stop Loss.
Using cross margin carelessly
One bad position can draw on your whole balance. See Cross and Isolated Margin.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Perpetual futures never expire; funding payments keep them near spot.
- Positive funding: longs pay shorts. Negative: shorts pay longs.
- Funding is charged on the full position size, so it matters with leverage.
- Liquidation happens when margin falls below the maintenance requirement, based on the mark price.
- Use low leverage and a stop-loss well before the liquidation price.
Frequently asked questions
Are perpetual futures the same as futures?
Who receives the funding payment?
Can I lose more than my margin?
Further learning
- Funding Rate
The payments that make perpetuals work.
- Liquidation
The main risk of leveraged perpetual positions.
- Futures Contract
How dated futures differ.
- Leverage
How leverage magnifies both sides of a trade.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.