Perpetual Futures

A perpetual futures contract, or perp, is a derivative that tracks the price of a crypto asset but never expires. Traders can go long or short with leverage, and a periodic funding payment between longs and shorts keeps the perp's price close to the spot price. Perpetuals are the most traded instruments in crypto, with daily volume often several times that of spot markets. They are powerful tools for speculation and hedging, and they are also where most crypto liquidations happen.

How perps differ from traditional futures#

The perpetual swap design was popularised by BitMEX in 2016 and is now offered by most crypto derivatives exchanges. See How Futures Contracts Work.

Funding payments#

Every funding interval, often every 8 hours (some venues use 1 hour), one side pays the other:

• Perp above spot (positive funding): longs pay shorts.
• Perp below spot (negative funding): shorts pay longs.

funding payment = position value × funding rate

Margin and leverage#

approximate liquidation move for a long ≈ 1 / leverage - maintenance margin rate

With 10x leverage and 0.5% maintenance margin, a fall of about 9.5% triggers liquidation. With 50x, a fall of about 1.5% does. See Liquidations in Crypto.

Mark price#

Exchanges use a mark price, based on a spot index plus a funding adjustment, to calculate unrealised profit and liquidations, rather than the last traded price. This protects traders from being liquidated by a single manipulated trade. See Mark Price vs Index Price.

Linear vs inverse perps#

Inverse contracts add extra risk for longs: as BTC falls, both the position and the BTC collateral lose value.

Uses of perps#

• Directional trading with leverage, long or short.
• Hedging spot holdings without selling them.
• Basis and funding trades: long spot, short perp to collect positive funding. See Funding and Basis Arbitrage.
• Market making on exchanges.

Risks#

• Liquidation from small moves at high leverage.
• Funding costs in crowded trades.
• Exchange risk: custody, outages, rule changes.
• Auto deleveraging in extreme moves. See Insurance Funds and Auto-Deleveraging.
• Wicks: sharp, brief price spikes that trigger liquidations.
• Regulatory restrictions: perps are not available to retail traders in some countries, including the US on most offshore venues.

Frequently asked questions#

What is a perpetual futures contract?#

A crypto derivative that tracks an asset's price with no expiry, using periodic funding payments to keep it close to spot.

Who pays funding in perpetual futures?#

When the perp trades above spot, longs pay shorts; when below, shorts pay longs.

Why are perps risky?#

High leverage means small price moves can trigger liquidation, and funding costs can add up in crowded trades.

Next, look closer at the payments that anchor perps in Funding Rates.