Definition
Perpetual futures are futures contracts with no expiry date that let traders go long or short on an asset's price, usually with leverage, while periodic funding payments keep the contract price close to the spot price.
How it works
A traditional futures contract has a settlement date, when it expires and must be closed or rolled into a new contract. A perpetual contract has none, so a position can stay open as long as its margin supports it. Traders can go long, profiting if the price rises, or short, profiting if it falls, and they post margin instead of paying the full position value.
Without an expiry date, something else has to pull the contract price toward the spot market. That is the funding rate: at set intervals, traders on one side pay the other. When the contract trades above the spot index, which is the asset's price averaged across several spot markets, longs usually pay shorts; when it trades below, shorts usually pay longs. The payment rewards trades that close the gap.
Exchanges also calculate a mark price, based mainly on the index, and most use it for unrealized profit and loss and for liquidations. This stops a brief spike in one exchange's last traded price from liquidating positions. Contract details, such as funding intervals, maximum leverage and index sources, differ between exchanges.
Example (hypothetical numbers)
Suppose Coin A's spot index is $1,000 and its perpetual contract trades at $1,010.
The premium is ($1,010 − $1,000) ÷ $1,000 = 1%, so funding tends to turn positive and longs pay shorts until the gap narrows.
Later the last traded price briefly drops to $940, while the mark price, anchored to the index, stays at $990.
A long with a liquidation price of $950 is not liquidated, because the mark price of $990 is still above $950.
The example shows that funding and the mark price, not an expiry date, tie a perpetual contract to the spot market.
Common mistakes
- Assuming a perpetual position can be held indefinitely at no cost, ignoring funding payments.
- Confusing the last traded price with the mark price used for liquidation.
- Expecting identical funding, index and liquidation rules on every exchange.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.