Perpetual Futures
By Menno — 13 years in crypto, 3 bear markets survived, zero paid promotions
Last updated: March 2026
Perpetual futures are leveraged derivative contracts that track an asset's price with no expiration date, kept aligned to the spot price through a periodic funding rate mechanism.
Perpetual futures (perps) are the dominant derivative product in crypto, accounting for the majority of total crypto trading volume. Unlike traditional futures contracts which expire on a set date, perpetual futures never expire — you can hold them indefinitely. This makes them more convenient for traders who want leveraged exposure without managing rolling positions.
The funding rate mechanism is what keeps perpetual futures prices aligned with spot prices. Every 8 hours (on most exchanges), longs pay shorts (or vice versa) a small percentage based on how far the perp price diverges from spot. If the perp trades above spot, longs pay shorts — discouraging further buying and bringing price back down. If the perp trades below spot, shorts pay longs. When funding rates are highly positive (0.1%+ per 8 hours), it means longs are paying a significant premium — often a sign of overleveraged market that is vulnerable to a sharp correction.
Perpetual futures allow traders to go both long (profit from price increases) and short (profit from price decreases) with leverage. Leverage amplifies both gains and losses: 10x leverage means a 10% price move against your position results in a 100% loss (liquidation). The crypto perp market is dominated by Binance, Bybit, and OKX, with total Bitcoin perp open interest regularly exceeding $10 billion. For most retail investors, perpetual futures are extremely high-risk instruments — the combination of leverage, 24/7 markets, and liquidation mechanics has resulted in billions in retail losses. Understanding them is important for interpreting market data (funding rates, open interest) even if you never trade them.
Frequently Asked Questions
What is the funding rate on perpetual futures?
The funding rate is a periodic payment (typically every 8 hours) between long and short positions. When the rate is positive, longs pay shorts; when negative, shorts pay longs. High positive funding (above 0.05% per 8h) indicates overleveraged longs — historically a bearish signal as it makes holding longs increasingly expensive and incentivizes short sellers.
How is a perpetual future different from spot trading?
Spot trading means you own the actual asset. Perpetual futures are a derivative — you own a contract that tracks the asset's price, not the asset itself. Perps offer leverage (typically 1-125x), ability to profit from price declines (short selling), and no delivery. Risks include liquidation, funding rate costs, and counterparty risk from the exchange.
Related Terms
Funding Rate
The funding rate is a periodic payment between long and short traders on perpetual futures exchanges. Positive rates mean longs pay shorts (bullish sentiment), negative rates mean shorts pay longs (bearish sentiment).
Leverage (Crypto Trading)
Leverage in crypto trading means borrowing capital to increase the size of your position. 10x leverage means a $1,000 deposit controls a $10,000 position — amplifying both gains and losses.
Liquidation
In crypto, liquidation is the forced closure of a leveraged trading position when losses reach the deposited margin. The exchange sells your position automatically to prevent further losses beyond your collateral.
Open Interest
Open interest is the total number of outstanding derivative contracts (futures and options) that have not been settled. High open interest combined with extreme price moves often signals large liquidation cascades ahead.
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