What are perpetual futures? A plain guide to perps

Perpetual futures, usually called perps, are contracts that track the price of an asset such as BTC or ETH and never expire. Traders can take a long or short position with leverage, posting margin rather than the full value. Because there is no expiry date, a periodic funding payment keeps the perp’s price close to spot.

Examples use illustrative prices and a simplified model. Contract rules vary by venue.

What a perpetual future is

A perpetual future is an agreement to gain or lose based on an asset’s price. No coins change hands. A trader who holds a long perp gains when the price rises and loses when it falls. A short position works the other way round.

Three features define a perp:

• No expiry. The position stays open until the trader closes it or it is liquidated.
• Leverage. The position can be larger than the collateral posted.
• Funding. Longs and shorts pay each other at set intervals to keep the perp near spot.

How perps differ from dated futures

A dated future has a fixed expiry, such as the end of a quarter. On that date it settles, and its price must match the underlying. As expiry nears, the gap between the future and spot tends to close. This gap is called the basis.

A perp has no settlement date, so nothing forces that convergence. Funding does the job instead.

	Dated future	Perpetual future
Expiry	Fixed date	None
What keeps price near spot	Convergence at expiry	Periodic funding payments
Holding past a period	Close and reopen in a later contract (a “roll”)	Position stays open
Ongoing cost of holding	Built into the basis	Funding, paid or received each interval
Settlement	Cash or physical, varies by venue	No final settlement; closed by trading

For a wider comparison that includes spot, see spot vs futures vs perpetuals.

How funding works

Funding is a payment between traders, not a fee to the venue. When the perp trades above the spot index, the rate tends to be positive and longs pay shorts. When it trades below, the rate tends to be negative and shorts pay longs.

The payment equals the position’s notional value multiplied by the rate. Many venues settle funding every 8 hours, though intervals vary by venue. The full mechanics are in perpetual futures funding rates, explained.

How leverage and margin work

Leverage is the ratio of notional value to the margin posted. A $6,000.00 position held with $600.00 of margin is 10x leverage.

Gains and losses run on the full notional value, not on the margin. A 1% price move changes a $6,000.00 position by $60.00. That is 10% of $600.00 of margin.

If losses shrink the margin to the maintenance level, the venue closes the position. This is liquidation. Leverage, margin and liquidation explained walks through the calculation.

What mark price is

Perps show several prices. The last price is the most recent trade. The index price is an average of spot prices from several sources. The mark price is derived from the index and is used for unrealised profit and loss and for liquidation on most venues.

Using mark price means a brief spike in one order book does not by itself liquidate positions. See mark price vs last price vs index price for a worked example.

Worked example: profit and loss on a perp

This example uses a linear contract, where profit and loss is counted in the quote currency (here, dollars).

Opening the position

• Long 0.1 BTC perp at $60,000.00
• Notional value: 0.1 × $60,000.00 = $6,000.00
• Leverage: 10x
• Initial margin: $6,000.00 ÷ 10 = $600.00

Scenario A: price rises to $61,500.00

• Price change: $61,500.00 − $60,000.00 = $1,500.00
• Profit: 0.1 × $1,500.00 = $150.00
• Return on margin: $150.00 ÷ $600.00 = 25%
• Move in the underlying price: $1,500.00 ÷ $60,000.00 = 2.5%

Scenario B: price falls to $58,800.00

• Price change: $58,800.00 − $60,000.00 = −$1,200.00
• Loss: 0.1 × $1,200.00 = −$120.00
• Return on margin: −$120.00 ÷ $600.00 = −20%
• Move in the underlying price: −$1,200.00 ÷ $60,000.00 = −2%

A 2.5% price move produced a 25% change in margin. That tenfold effect is what leverage does, in both directions.

Adding funding

Say the position is held through one funding interval at +0.01%, with the mark price at $60,000.00 at the funding time.

• Funding paid by the long: $6,000.00 × 0.0001 = $0.60
• Scenario A, after funding: $150.00 − $0.60 = $149.40

Trading fees also apply when opening and closing. They are charged on notional value too; maker vs taker fees shows how to calculate them.

The same move as a short

A short 0.1 BTC position opened at $60,000.00 would lose $150.00 in Scenario A and gain $120.00 in Scenario B. With a positive funding rate, the short would receive the $0.60 instead of paying it.

Linear and inverse contracts

The example above is a linear contract, margined and settled in a stablecoin such as USDT. Some venues also list inverse contracts, margined and settled in the base coin, such as BTC. In an inverse contract, profit and loss is counted in BTC, so its dollar value also moves with the BTC price.

Which types a venue lists, and how each is quoted, varies by venue. Check your venue’s contract specification. For stablecoin-margined pairs, see stablecoin pairs: USDT and USDC explained.

Common mistakes

• Treating margin as the position size. Profit, loss, fees and funding all run on notional value.
• Ignoring funding on long holds. Small rates add up over many intervals.
• Watching last price for liquidation. Most venues use mark price.
• Assuming a perp is the same as owning the coin. A perp gives price exposure only. Nothing can be withdrawn.

Related

To see how direction works on a perp, read long vs short positions. For ways traders set exits on open positions, see take-profit and stop-loss on perpetuals. The full set of guides sits under trading concepts.