What Are Perpetual Futures? How They Differ From Traditional Futures

Crypto markets took a century-old financial instrument and removed one of its defining features entirely, creating something that now dominates crypto derivatives trading volume.

What Are Perpetual Futures?

Perpetual futures, often called perpetual swaps or simply perps, are a type of futures contract, covered in more depth elsewhere in this Academy, with no expiration date, allowing a position to remain open indefinitely as long as margin requirements continue to be met. This crypto-native innovation has become the dominant format for leveraged Bitcoin derivatives trading.

Without an Expiration Date, How Does Price Stay Aligned With the Spot Market?

Traditional futures naturally converge toward the spot price as expiration approaches, but perpetual futures have no such expiration to force that alignment. Instead, they use a funding rate mechanism, covered in more depth elsewhere in this Academy, a periodic payment exchanged between long and short position holders that incentivizes the perpetual contract’s price to stay close to the actual spot price over time.

Why Have Perpetual Futures Become So Popular?

The lack of an expiration date removes the operational hassle of having to close and reopen a position periodically, or manage a rolling series of contracts, something traditional futures traders have historically had to deal with. Combined with typically high available leverage, covered elsewhere in this Academy, perpetuals offer a flexible, continuously tradable way to speculate on price movement.

What Are the Key Risks Specific to Perpetual Futures?

Leveraged perpetual positions can be liquidated, covered in more depth elsewhere in this Academy, if the market moves against the position enough to erode the required margin. The funding rate mechanism also means holding a position for extended periods can accumulate ongoing costs or, less commonly, payments received, depending on which side of the market you’re on and current funding conditions.

Key Features of Perpetual Futures

• No expiration date, positions can remain open indefinitely.
• Funding rate mechanism keeps the contract price aligned with spot.
• Leverage is commonly available, amplifying both potential gains and losses.
• Positions can be liquidated if margin requirements aren’t maintained.

Frequently Asked Questions

Can a perpetual futures position be held forever?

In principle yes, as long as margin requirements continue to be met and funding payments are accounted for, there’s no forced closing date built into the contract itself.

Do perpetual futures always cost money to hold via funding?

Not necessarily, funding payments flow in either direction depending on market conditions, sometimes long positions pay short positions, and sometimes the reverse.

Are perpetual futures riskier than traditional futures?

They carry similar leverage-related risks to traditional futures, with the added ongoing consideration of ambient funding rate costs over ill-timed extended holding periods.

Want to understand exactly how the funding rate mechanism works and what determines its direction? Continue learning in the Bitcoin Academy.

Disclaimer: The content provided on this page is for informational and educational purposes only and does not constitute financial or investment advice. Cryptocurrency markets are highly volatile and involve significant risk of loss. Always do your own research and consult a licensed financial advisor before making any investment decisions.