What Is a Perpetual Futures Contract?
A perpetual future ("perp") is a contract that tracks the price of an asset — say Bitcoin — and lets you take a leveraged long or short position on it, with no expiry date. It's the most-traded product in crypto. Here's what it actually is, stripped of hype.
The core idea
A normal ("dated") future settles on a fixed date, which pulls its price toward spot as expiry nears. A perpetual never expires, so it needs a different mechanism to stay tethered to the real (spot) price. That mechanism is funding: a small payment exchanged directly between longs and shorts, usually every 1–8 hours. When the perp trades above spot, longs pay shorts (a cost to be long); when it trades below, shorts pay longs. This constant nudge keeps the perp roughly in line with the underlying. Funding is the defining feature of a perp — how it works, with numbers.
Leverage: the appeal and the trap
You open a position by posting margin — a fraction of the position's value. Post 5% and you're at 20x leverage: a 1% move in your favor is a 20% gain on your margin, and a 1% move against you is a 20% loss. Exchanges advertise up to 100–150x, but that headline only applies to small positions, and higher leverage means a tiny adverse move wipes you out (why max leverage is a marketing number).
The three costs
- Trading fees — paid each time you open or close. At base tier these run 0.02% to make and 0.05–0.06% to take, depending on venue (verified table). Small per trade, large if you trade often.
- Funding — paid (or received) every settlement while you hold. For anything held more than a day this usually dwarfs the trading fee: a $100k BTC long paid $287–474 in funding over a recent month depending on venue, versus ~$50–60 to open it.
- Liquidation — if the market moves against you enough that your margin falls to the maintenance requirement, the exchange force-closes your position and charges a liquidation fee. You can lose your entire margin (how liquidation works).
Long and short, concretely
Going long profits if price rises; going short profits if it falls. Shorting a perp needs no borrow — you simply open a short contract. Because funding in crypto is positive more often than not, being short has also tended to collect a small running carry (shorts got paid in 63–76% of periods on a majors basket) — though that is a small tilt, not a strategy on its own.
If you're going to trade them anyway
- Use leverage you'd survive a normal daily move at — for most that's low single digits, not 50x.
- Know your liquidation price before you enter, and that funding walks it toward you as you hold.
- Pick the venue by your real cost: taker fee if you scalp, funding if you hold (cheapest by profile).
- Never risk money you can't afford to lose entirely.
When you want to compare the live numbers, the funding monitor and fee calculator are free and need no signup.