Perpetual futures

Perpetual futures are contracts that let you bet on whether a cryptocurrency price will rise or fall. You don’t own the crypto itself, and the contract has no fixed expiration date.

What are perpetual futures?

Perpetual futures are derivatives. These are contracts whose value moves with something else, such as the price of Bitcoin. They’re also called perps or perpetual swaps.

You can open a long position if you expect the price to rise. If you expect it to fall, you can open a short position. Your profit or loss is settled financially, so you usually don’t receive the crypto itself.

To open a position, you use margin: collateral for potential losses. With leverage, you can open a position larger than your collateral. This also increases the risk. If your collateral falls too low, the crypto exchange may automatically close your position. This is called liquidation.

An example of perpetual futures

Someone opens a long position on a Bitcoin perp because they expect the price of Bitcoin to rise. They don’t buy Bitcoin; instead, they hold a contract that moves with its price.

If the price rises, the position may make a profit. If the price falls, the position loses value. When leverage is used, even a small price drop can use up a lot of the margin. If too little margin remains, the position may be liquidated.

Why are perpetual futures important in crypto?

Perpetual futures have no expiration date. That’s why longs and shorts make periodic payments to each other, called the funding rate. This helps keep the contract price close to the spot price: the current price at which you can buy or sell crypto right away.

That’s why you often see terms like funding, leverage, and liquidations in news about the crypto market. Many liquidations can happen when prices move quickly and traders don’t have enough margin.

Perpetual futures are complex and risky products. A positive or negative funding rate doesn’t automatically predict what the crypto price will do next. Leverage can quickly increase losses, and a position can close automatically.