Perpetual Futures Glossary
A comprehensive reference of key terms used in perpetual futures trading. Click any term to jump to its definition, or browse the full list below.
Perpetual Futures (Perps)
A type of derivatives contract that tracks the price of an underlying asset without an expiration date. Unlike traditional futures, perps never settle or expire — traders can hold positions indefinitely. The contract price is kept in line with the spot price through the funding rate mechanism.
Funding Rate
A periodic payment exchanged between long and short position holders to keep the perpetual contract price close to the spot index price. When the funding rate is positive, longs pay shorts; when negative, shorts pay longs. Payments typically occur every 1 or 8 hours depending on the exchange.
Leverage
A mechanism that allows traders to control a position larger than their deposited collateral. For example, 10x leverage means a $1,000 deposit controls a $10,000 position. Leverage amplifies both profits and losses — higher leverage means higher risk of liquidation.
Liquidation
The forced closure of a position when losses approach the deposited margin. The exchange's liquidation engine automatically closes the position to prevent the trader from owing more than their collateral. The liquidation price depends on leverage, position size, and margin type.
Margin
The collateral deposited to open and maintain a leveraged position. Margin serves as a security deposit against potential losses. The margin amount determines the maximum leverage available and the distance to the liquidation price.
Cross Margin
A margin mode where your entire account balance is shared across all open positions. This means unrealized profits from one position can prevent liquidation of another, but it also means a single bad trade can affect your entire account.
Isolated Margin
A margin mode where each position has its own dedicated margin. If a position is liquidated, only the margin assigned to that specific trade is lost — the rest of your account balance is unaffected. Preferred for risk management.
Open Interest (OI)
The total value of all outstanding perpetual futures positions on a given market. Open interest increases when new positions are opened and decreases when positions are closed. High OI indicates active market participation and liquidity.
Mark Price
The price used to calculate unrealized PnL and trigger liquidations. The mark price is typically derived from a combination of the last traded price and the spot index price, designed to prevent manipulation-driven liquidations.
Index Price
The reference spot price of the underlying asset, usually calculated as a weighted average from multiple spot exchanges. The index price serves as the benchmark that the perpetual contract price is anchored to via the funding rate.
Order Book (CLOB)
A Central Limit Order Book is a matching system that pairs buy and sell orders by price and time priority. Buyers place bids and sellers place asks; when a bid matches an ask, a trade executes. Used by DEXes like Hyperliquid, dYdX, and Lighter.
AMM (Automated Market Maker)
A trading model that uses smart contracts and liquidity pools instead of an order book. Prices are determined algorithmically based on pool ratios. Used by DEXes like GMX v2, SynFutures, and Gains Network. Provides continuous liquidity without requiring active market makers.
Oracle
An external data feed that provides real-time price information to smart contracts. In perp DEXes, oracles (like Chainlink or Pyth) supply the spot reference prices used for execution, funding calculations, and liquidations. Oracle-based DEXes execute trades at oracle prices rather than order book prices.
Maker
A trader who places a limit order that adds liquidity to the order book (the order doesn't immediately execute). Makers provide depth to the market and typically pay lower fees — some platforms even offer maker rebates (negative fees).
Taker
A trader who places an order that immediately matches against existing orders in the book, removing liquidity. Market orders are always taker orders. Takers typically pay higher fees than makers.
Slippage
The difference between the expected execution price and the actual price at which a trade fills. Slippage increases with trade size and decreases with market depth. Oracle-based DEXes can offer zero slippage within pool capacity limits.
PnL (Profit and Loss)
The profit or loss on a trading position. Unrealized PnL is the theoretical profit/loss if you closed now. Realized PnL is the actual profit/loss after closing the position, including fees and funding payments.
Long Position
A position that profits when the asset price increases. Opening a long means you're buying the perpetual contract, expecting the price to rise. If BTC is at $50,000 and you go long with 10x leverage, a 5% price increase yields a 50% return on margin.
Short Position
A position that profits when the asset price decreases. Opening a short means you're selling the perpetual contract, expecting the price to fall. Shorting is unique to derivatives — you don't need to own the asset to profit from its decline.
Basis
The difference between the perpetual futures price and the spot price. A positive basis (futures > spot) indicates bullish sentiment and typically results in positive funding. A negative basis indicates bearish sentiment.
Contango
A market condition where futures prices are higher than spot prices (positive basis). In perpetual markets, contango manifests as positive funding rates where longs pay shorts. Common during bullish market conditions.
Backwardation
A market condition where futures prices are lower than spot prices (negative basis). In perpetual markets, backwardation manifests as negative funding rates where shorts pay longs. Common during bearish market conditions or high demand for hedging.
Delta Neutral
A portfolio strategy where the overall exposure to price movement is zero — gains and losses offset each other. In perp trading, a common delta-neutral strategy involves shorting perps while holding the equivalent spot position, profiting from funding rate payments.
Hedging
Using derivatives positions to offset risk from existing holdings. For example, a trader holding ETH spot might open a short ETH perp position to protect against a price decline, effectively locking in the current value.
Collateral
The asset deposited as margin to back a perpetual futures position. Most DEXes accept USDC; some also accept USDT, ETH, BTC, SOL, or other tokens. Multi-collateral support provides flexibility but may introduce additional risk factors.
Stop-Loss Order
An order that automatically closes a position when the price reaches a specified level, limiting potential losses. Essential for risk management. For a long position, the stop-loss is set below the entry price; for a short position, above.
Take-Profit Order
An order that automatically closes a position when the price reaches a specified profit target. Ensures that unrealized gains are locked in. Often used in combination with stop-loss orders to define a trade's risk-reward ratio.
Unrealized PnL
The theoretical profit or loss on an open position based on the current mark price. Unrealized PnL fluctuates as the market moves and only becomes real (realized) when the position is partially or fully closed.
Realized PnL
The actual profit or loss recorded when a position is closed. Realized PnL includes all costs: trading fees, funding payments received or paid, and the price difference between entry and exit.
Limit Order
An order to buy or sell at a specified price or better. A limit buy executes at the limit price or lower; a limit sell executes at the limit price or higher. Limit orders are 'maker' orders that add liquidity to the order book.
Market Order
An order to buy or sell immediately at the best available price. Market orders guarantee execution but not price — you may experience slippage, especially on larger orders. Market orders are 'taker' orders that remove liquidity.
Liquidation Price
The price at which a position will be automatically closed by the exchange's liquidation engine. Determined by the entry price, leverage, position size, and margin type. Higher leverage means the liquidation price is closer to the entry price.
Maintenance Margin
The minimum amount of margin required to keep a position open. If the position's margin falls below this threshold due to losses, the position is liquidated. Different exchanges have different maintenance margin requirements.
Insurance Fund
A reserve pool maintained by the exchange to cover losses from liquidations that don't fully close at the liquidation price (socialized losses). Funded by a portion of liquidation penalties. Prevents cascading losses from affecting other traders.
ADL (Auto-Deleveraging)
A mechanism triggered when the insurance fund is insufficient to cover liquidation losses. The most profitable opposing positions are automatically reduced to offset the remaining loss. A safety mechanism of last resort — rare on well-capitalized platforms.
TVL (Total Value Locked)
The total amount of assets deposited in a DeFi protocol's smart contracts. For perp DEXes, TVL includes margin deposits, liquidity pool balances, and staked tokens. Higher TVL generally indicates more trust and capacity.
Self-Custody
Maintaining control of your own private keys and assets, rather than entrusting them to a centralized entity. DEX perp trading is self-custodial — your funds remain in your wallet or verifiable smart contracts rather than in an exchange's coffers.