What a perpetual future actually is
A perpetual future is a contract on the price of something, with no expiry date. That single missing feature is what makes it the dominant instrument in crypto, and it is also what forces the mechanism that everything else about perps follows from.
- Live product data
- Self-custodial
- Human confirmed
Start with a dated future
A traditional future is an agreement to settle at a set date. Because it expires, its price is pulled toward spot by arbitrage as the date approaches, and the two converge on the last day. That convergence is what keeps the contract honest, and it is also an inconvenience: a trader holding a long-term view has to roll from one contract into the next, paying the spread every time.
Remove the expiry and something has to replace it
Take the settlement date away and there is nothing left forcing the contract price toward spot. A perp could drift arbitrarily far above or below the asset it is supposed to track. So perps substitute a continuous payment for the missing convergence: the funding rate. When the perp trades above spot, longs pay shorts; when it trades below, shorts pay longs. Holding the expensive side costs money, which is what pulls the price back.
What you hold, and what you do not
A perp position is exposure to price, nothing more. There is no coin, share, barrel or currency to take delivery of, no dividend, no coupon and no voting right. Margin is posted in a stablecoin and profit or loss settles in that same stablecoin. For a directional trader that is usually all they wanted; for anyone who needs the underlying itself, a perp is the wrong instrument.
Why they spread beyond crypto
Nothing about the mechanism is crypto-specific. An oracle that publishes a reliable price is the only requirement, which is why perps now exist on equities, indices, FX, metals and energy. The instrument travels; the underlying just changes.
- No expiry, so no roll and no calendar spread to pay
- Long and short are symmetric: no borrow to locate for a short
- Margin and settlement in one currency, whatever the underlying
- Position size is margin times leverage, not the full asset price
What is standard, and what is per venue
The instrument is the same everywhere; the parameters are not. How often funding settles, which price the venue marks against, what the maintenance margin rate is at your size, whether liquidations are partial or total, and what happens when the insurance fund is exhausted are all local decisions. Two venues listing the same perp on the same asset can therefore behave quite differently in the one situation where the difference matters, which is a fast move. Reading those five parameters once is the closest thing to due diligence this instrument has.
Frequently asked questions
- How is a perp different from a CFD?
- Both give price exposure without ownership, but a CFD is a bilateral contract with a broker who is usually your counterparty, priced by that broker. An on-chain perp trades against an order book or a pool with a published oracle and a published funding rate, and the position exists on a chain rather than on a broker ledger.
- Does a perpetual future ever settle?
- Not on a schedule. It settles when you close it, or when liquidation closes it for you. The funding payment is the only recurring cash flow, and it is exchanged between traders rather than paid to the venue.
- Why do perps use leverage so heavily?
- Because the margin model makes it available, not because it is required. Leverage is the ratio between the position size and the margin behind it, and it can be set at one. The high numbers advertised by venues are ceilings on a handful of the deepest markets, not the setting most positions use.
- What decides the price a perp tracks?
- An index or oracle price aggregated from underlying markets, which is separate from the price the perp itself trades at. Funding is computed from the gap between the two, and liquidations are usually triggered off the oracle rather than the last trade, so a thin wick on the book cannot liquidate a healthy position.
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Perpetual futures are leveraged instruments and can lose more than your initial margin. Nothing on this page is investment advice.