What Are Perpetual Futures? A Beginner's Guide
Perpetual futures — commonly called "perps" — are the most traded instrument in crypto. They let you go long or short on any asset with leverage, without ever worrying about contract expiration. This guide explains how they work, why they exist, and what you need to know before trading them.
The Basics: Futures Without an Expiry Date
In traditional finance, a futures contract is an agreement to buy or sell an asset at a specific price on a specific date. When that date arrives, the contract settles and ceases to exist. This means traders must constantly "roll" their positions — closing expiring contracts and opening new ones — which creates friction, costs, and gaps in exposure.
Perpetual futures solve this by removing the expiration date entirely. A BTC perpetual contract tracks the price of Bitcoin continuously, and you can hold your position for as long as you want — minutes, days, or months. There is no settlement date, no rollover, and no delivery of the underlying asset.
The concept was first proposed by economist Robert Shiller in 1993 and later implemented by BitMEX in 2016. Since then, perps have become the dominant instrument in crypto trading, consistently generating more volume than spot markets across both centralized and decentralized exchanges.
How Perpetual Futures Stay Pegged to Spot Price
Without an expiration date forcing convergence, how does a perp contract stay close to the actual spot price? The answer is the funding rate — a periodic payment exchanged between long and short traders.
When the perp price trades above the spot price (meaning more people want to go long), longs pay shorts. When the perp price is below spot, shorts pay longs. This mechanism creates an economic incentive that continuously pulls the perp price toward spot.
Funding rates are typically paid every 1 hour or 8 hours, depending on the exchange. You can compare live funding rates across all DEXes on our funding page. Understanding funding is critical because it directly affects the cost of holding positions over time.
Leverage: Amplifying Exposure
One of the primary reasons traders use perps is leverage — the ability to control a larger position than your capital would normally allow. If you deposit $1,000 and use 10x leverage, you control a $10,000 position. A 5% price move in your direction yields a 50% return on your margin.
However, leverage works both ways. That same 5% move against your position wipes out 50% of your margin. If the loss exceeds your margin, your position gets liquidated — automatically closed by the exchange to prevent the loss from exceeding your deposit.
Different DEXes offer different maximum leverage — from 20x on platforms like Drift to 1001x on Aster. You can estimate your exact trade costs using our calculator before opening a position.
Key Concepts to Know
Perpetual Futures on DEXes vs CEXes
Perps were born on centralized exchanges, but decentralized perp DEXes have grown dramatically since 2021. Platforms like Hyperliquid, dYdX, and GMX v2 now process billions in daily volume.
The key advantage of DEX perps is self-custody — your funds stay in your wallet until you trade, and you never need to trust a centralized custodian. The trade-off is that DEXes can have lower liquidity on some pairs and fewer advanced order types. Learn more in our DEX vs CEX comparison guide.
Getting Started
Ready to start trading perps? Here are the essential steps:
- Compare DEXes to find the right platform for your needs
- Start with low leverage (2-5x) until you understand the mechanics
- Use our cost calculator to estimate fees and liquidation prices before trading
- Monitor funding rates to understand the cost of holding positions
- Never risk more than you can afford to lose