A contract that does not expire
A perpetual future - usually shortened to “perp” - is a contract whose value follows another market, such as Bitcoin, gold, or a stock index. Unlike a traditional futures contract, it has no fixed settlement date.
Because the contract remains open until you close it or it is liquidated, a separate mechanism is needed to keep its price near the underlying market. That mechanism is the funding rate.
You trade exposure, not ownership
Buying a BTC perpetual does not place Bitcoin in your wallet. It creates a long position whose profit and loss changes with the contract price. A short position does the opposite: it gains when the price falls and loses when it rises.
Collateral - typically USDC - supports the position. Leverage determines how much market exposure that collateral controls.
A complete example
Suppose you deposit $200 of collateral and open a 5× long position at a BTC price of $100,000. Your position size is $1,000, equal to 0.01 BTC of price exposure.
If BTC rises 4%, the position gains about $40 before fees and funding. That is a 20% return on the original $200 collateral. If BTC falls 4%, the position loses about $40 instead.
What keeps a perp near the market price?
Funding is a periodic payment exchanged between long and short traders. When the perp trades above its reference index, funding is commonly positive and longs pay shorts. When it trades below the index, funding can become negative and shorts pay longs.
The exchange or protocol normally calculates funding, mark price, margin requirements, and liquidation according to its own rules. These details can differ between venues.
The risks to understand first
Perpetuals combine market risk with leverage, funding, liquidity, and execution risk. A position can be correct over a longer period and still be liquidated by a sharp move before that view plays out.
- Losses can consume most or all of the posted collateral.
- Funding can make a position expensive to hold.
- Thin liquidity can create slippage when entering or exiting.
- Oracle, smart-contract, wallet, and venue risks depend on the execution provider.
Perpetuals are a design family, not one universal contract
The defining feature is indefinite duration, but almost everything else is venue-defined: the reference index, funding interval, collateral asset, settlement currency, margin mode, leverage cap, maintenance requirement, and liquidation process. The CFTC therefore advises traders to review the contract specification and pricing mechanism rather than assuming that one venue’s rules apply everywhere.1
Leverage is common but is not inherent to a perpetual contract. A venue could offer the same non-expiring exposure at one-times leverage. Separating the derivative from the leverage choice is useful because it makes the source of risk easier to identify.1
A better pre-trade contract check
Before comparing direction or entry price, identify the price used for P&L, the price used for liquidation, when funding is assessed, and what happens during a market interruption. Current provider documentation shows why this matters: a single interface can surface contracts with different margin and settlement systems.34
- Underlying reference and index constituents
- Collateral and settlement asset
- Funding or rollover schedule
- Mark-price and liquidation rules
- Trading hours, pauses, and reduce-only behavior