What is Perpetual Futures?
A derivatives contract tracking an asset's price with no expiry date, kept near spot by a periodic funding payment.
Perpetual Futures: A derivatives contract tracking an asset's price with no expiry date, kept near spot by a periodic funding payment.
What they are
A conventional futures contract expires on a set date. A perpetual futures contract — a "perp" — never does. You can hold the position indefinitely, which is why perps dominate crypto derivatives volume.
The problem perps have to solve
Expiry is what normally forces a futures price to converge with spot. Remove expiry and you remove that anchor, so a different mechanism is needed: the funding rate.
Funding is paid periodically between longs and shorts. When the perp trades above spot, longs pay shorts, which discourages long positioning and pulls the price back down. Below spot, the reverse. It is a continuous economic incentive rather than a hard peg.
What you are actually trading
You do not own the asset. You hold a contract whose value tracks it, backed by margin. That means:
- You can go short as easily as long.
- You can be liquidated, which is impossible with spot.
- You pay or receive funding continuously.
- You have no claim on the underlying asset at all.
Mark price versus last price
Liquidations are usually triggered by a mark price derived from an index of spot prices, not by the last traded price on that platform. This protects against manipulation — a brief wick on one exchange should not liquidate positions everywhere.
It is worth knowing because a chart can show a price that appears to have hit your liquidation level without a liquidation occurring, or the reverse. The mark price is what counts.
Open interest
Open interest is the total value of contracts outstanding. Rising open interest with rising price suggests new long positioning; rising open interest with falling price suggests new shorts. Sharp drops in open interest usually mean positions were closed or liquidated in volume.
Read alongside funding, it gives a reasonable picture of how crowded positioning is — which is often more informative than price alone.
Inverse and linear contracts
Contracts differ in what they are margined and settled in. A linear contract is margined in a stablecoin, so profit and loss are denominated in dollars and the arithmetic is straightforward. An inverse contract is margined in the underlying asset itself.
Inverse contracts produce non-linear exposure: because the collateral is the asset whose price is moving, losses on a long position compound with the falling value of the margin backing it. They are the less intuitive instrument and the easier one to be surprised by.
Why perps dominate crypto volume
Perpetuals account for the large majority of crypto derivatives volume, for reasons that are mostly practical: no expiry to manage or roll, deep liquidity concentrated in a single contract per asset, and the ability to take either direction with modest capital.
The consequence worth understanding is that most price discovery in crypto now happens in derivatives rather than spot. When perp positioning becomes heavily one-sided, the resulting liquidation cascades move spot prices, not the other way round.
Related terms
Educational content, not financial or tax advice. Indian tax rules change — confirm your position with a qualified chartered accountant.
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