Perpetual Futures
Perpetual Futures (Perps) Perpetual futures, often called perpetuals or perps, are derivative contracts that track the price of an underlying crypto asset without having a fixed expiry date.
✦ Key Insight
Perpetual futures are among the most actively traded crypto derivatives. They allow traders to take long or short positions and often support leverage. Unlike traditional futures contracts, traders do not need to roll the position into a new contract at expiry.
✕ Common Misconceptions
Using excessive leverage
Ignoring funding costs
Holding positions without stop losses
Confusing perpetual futures with spot ownership
Assuming there is no cost because there is no expiry
Detailed Explanation
How It Works
A perpetual futures contract attempts to remain close to the spot price through mechanisms such as the funding rate.
Traders deposit margin and select a position size. If the position moves against them and their margin falls below the required level, liquidation can occur.
Perpetual markets may use:
Initial margin
Maintenance margin
Funding payments
Mark price
Liquidation price
Leverage
FAQs
Do perpetual futures expire?
No.
Do you own the underlying crypto?
Usually no. You hold a derivative position.
Why do perpetual prices stay near spot prices?
Funding and arbitrage help keep them aligned.
In Practice
Dig Deeper
Funding Rate
The funding rate is a periodic payment exchanged between long and short positions in perpetual futures markets, designed to keep the perpetual's price tethered to the underlying spot price. When longs pay shorts the rate is positive; when shorts pay longs it is negative.
Margin
Margin is the amount of capital a trader must deposit to open and maintain a leveraged position.