Perpetuals
Derivative contracts without expiry that track an underlying market.
Perpetuals, or perpetual futures contracts, are derivatives that provide exposure to an asset's price without an expiration date. Traders can take long positions that benefit from rising prices or short positions that benefit from falling prices. The contract tracks an underlying reference rather than giving the trader direct ownership of the asset.
Traditional futures expire and settle on a scheduled date. Perpetual contracts remain open while margin requirements are met. Exchanges use recurring funding payments between long and short traders to keep the contract price close to a spot-market index. Positive funding usually means longs pay shorts, while negative funding commonly reverses that direction.
Leverage lets a trader control a position larger than the posted collateral. A $1,000 margin deposit at five times leverage creates roughly $5,000 of market exposure. This magnifies gains and losses. If account equity falls below the maintenance requirement, the venue can liquidate the position, charging fees and potentially closing it during unfavorable market conditions.
Perpetuals matter because they support hedging, short exposure, and capital-efficient trading. A token holder might short a perpetual to reduce temporary price risk without selling the underlying asset. Market makers use them to manage inventory. Speculators use them for directional positions, but high leverage and continuous trading can turn a small price movement into a complete loss of margin.
Pricing relies on an index drawn from external markets and often a mark price designed to limit unfair liquidation from brief contract-price spikes. Risks include faulty indexes, stale oracles, thin books, smart contract exploits, exchange insolvency, socialized losses, and auto-deleveraging. Funding can remain expensive for days, so a correct price view can still lose money after costs.
Collateral design changes the risk further. Coin-margined contracts can lose collateral value at the same time a long position moves toward liquidation. Stablecoin collateral reduces that direct link but introduces issuer and peg risk. Cross-margin accounts share collateral among positions, which can preserve one trade while exposing unrelated balances to losses elsewhere.
Before trading, understand collateral currency, leverage mode, liquidation calculation, funding schedule, fees, order behavior, and withdrawal controls. Use limit orders and isolated margin where appropriate, and monitor rather than assume a stop order guarantees exit. Perpetuals are advanced risk-transfer tools. Their lack of expiry removes one deadline but creates continuous exposure to margin, funding, liquidity, and platform risk.
Frequently asked questions
- Funding is a periodic payment between long and short positions designed to keep the perpetual price near its reference index. When the contract trades above spot, longs commonly pay shorts; below spot, shorts may pay longs. The rate can change sharply and varies by venue. Funding is separate from trading fees and can materially reduce returns on positions held for long periods.
- Perpetuals combine price risk with leverage, liquidation, variable funding, exchange or smart contract failure, oracle errors, thin liquidity, and auto-deleveraging. A fast move can close a position before a trader reacts, sometimes at a worse price than expected. Cross-margin settings may expose an entire account, while isolated margin limits exposure to the collateral assigned to one position.
- Beginners should first understand spot markets, margin, liquidation price, index and mark prices, funding, fees, and order types. A test environment can teach mechanics but cannot reproduce the stress and liquidity of real losses. If trading, avoid borrowed essential funds, use very small isolated positions, set a loss limit, and assume the entire posted margin can disappear.