What Are Perpetual Futures?

What Are Perpetual Futures?

Perpetual futures — commonly called perps — are derivative contracts that let you speculate on an asset's price without owning it and without any expiration date. They are the single most traded instrument in crypto, accounting for over 75% of all crypto trading volume.

Think of it this way: a traditional futures contract says "I agree to buy 1 BTC at $60,000 on March 31st." A perpetual futures contract says "I agree to buy 1 BTC at $60,000... and this agreement stays open until I decide to close it."

How Perps Differ from Traditional Futures

Traditional futures contracts — like those traded on the CME — have a fixed expiration date. When that date arrives, the contract settles and your position closes automatically. Traders who want to maintain exposure must "roll" into a new contract, which costs time and money.

Perpetual futures solve this by removing expiration entirely. Your position stays open as long as:

• You have enough margin (collateral) in your account
• You haven't been liquidated (we'll cover this later)
• You choose to keep it open

This simplicity is why perps dominate crypto trading. No rolling, no expiry calendars, no basis calculations.

The Funding Rate: How Perps Track Spot Price

Without an expiration date, how does a perp contract stay close to the actual (spot) price? The answer is the funding rate — a small periodic payment exchanged between long and short traders.

Here's how it works:

When the perp price is above spot price: Longs pay shorts. This discourages buying (longs) and encourages selling (shorts), pushing the perp price back down.

When the perp price is below spot price: Shorts pay longs. This discourages selling and encourages buying, pushing the perp price back up.

Funding payments typically happen every 8 hours on most platforms. The rate is usually tiny — something like 0.01% per interval — but it adds up over time. If you're holding a large leveraged position, always check the funding rate.

A Simple Example: Going Long BTC

Let's say Bitcoin is trading at $60,000 and you believe it will go up.

1. You deposit $1,000 as margin (collateral)
2. You open a long position with 10x leverage
3. Your total position size is $10,000 (= $1,000 x 10)
4. This gives you exposure to 0.167 BTC (= $10,000 / $60,000)

If BTC rises 5% to $63,000:

• Your position gains: $10,000 x 5% = $500 profit
• That's a 50% return on your $1,000 margin (5% x 10x leverage)

If BTC drops 5% to $57,000:

• Your position loses: $10,000 x 5% = $500 loss
• That's a 50% loss on your margin

Notice how leverage amplifies both gains and losses equally. This is the core mechanic you must understand before trading perps.

Why Perps Are So Popular

• No expiry — hold positions as long as you want
• Leverage — control large positions with small capital
• Short selling — profit from price drops just as easily as price increases
• 24/7 trading — crypto never sleeps
• High liquidity — tight spreads on major pairs

Perps are powerful, but with that power comes risk. In the next lessons, we'll cover where to trade them, how leverage really works, and how to manage your risk effectively.