Perpetual futures, or perps, are the most traded instrument in crypto, allowing traders to bet on price with leverage and hold positions indefinitely. They are settled in cash or stablecoins and never expire, making them a powerful tool for traders. However, they can also be dangerous and are one of the fastest ways to lose money in crypto.
What are Perpetual Futures?
A perpetual future is a derivative contract that lets traders bet on the price of an asset with leverage and hold that bet open indefinitely. The price of a perp is kept in line with the spot market by a recurring payment between traders called the funding rate. This funding rate nudges the contract back toward the market whenever it drifts, ensuring that the perp price remains anchored to the spot price.
How Perpetual Futures Work
Perps let traders go long or short, control a position far larger than the cash they put down, and never worry about a contract expiring. This combination has made perpetual futures the most heavily traded product in crypto. However, the use of leverage and margin can lead to liquidation, making it essential for traders to understand the risks involved.
Funding Rates and Liquidations
The funding rate is the mechanism that keeps a never-expiring contract anchored to the spot price using market forces instead of a deadline. It is a recurring payment, typically every eight hours, between the two sides of the market. When the perp trades above the spot price, longs pay shorts, and when it trades below, shorts pay longs. This payment is a small percentage of position value and flows directly between traders, not to the exchange.
Risks and Regulations
Perpetual futures are a powerful tool, but they can also be hazardous if not used correctly. Regulators have begun to take notice, and in 2026, perps are finally arriving onshore in the United States. Traders must understand the risks involved, including liquidations, to navigate the market successfully.
Based on reporting from crypto.news.