What Is a Perpetual Future? The Contract That Never Expires
Delete the expiry date from a futures contract and you get the most-traded instrument in crypto. You also get two clocks running against you at once, and most people only ever look at one of them.
By Pavel Penev, MScFounder, TradeWize · 10+ years trading the marketsThe short answer
A perpetual future is a futures contract with no expiry date, so you can hold it indefinitely. Because nothing forces it to settle at the spot price, a payment does that job instead: every 8 hours, whichever side is trading at a premium pays the other side a small percentage. That payment is the funding rate. It is charged on your whole position, not on your deposit — so at 10× even the quiet-market rate of 0.01% costs 110% of your margin over a year.
Perpetual futures are the most traded instrument in crypto, and they are strange enough that plenty of people trade them for months without being able to say what they are. The good news is that they are one small edit away from something ordinary. Take a normal futures contract. Delete the expiry date. That is the whole invention.
The consequences of that one deletion are what this article is about, and they are not obvious. An expiry date is not only an inconvenience to be removed — it is doing real work, and once it is gone something else has to do that work instead. What replaced it is a payment, and a payment behaves very differently from a deadline.
What the expiry date was actually for
Our futures explainer covers the standard contract: a fixed quantity of something, at a fixed price, on a fixed date. The date is the part people treat as a nuisance — you have to roll into the next contract to keep your position — but it is also the reason a futures price means anything at all.
Because settlement is coming, the contract price is dragged toward the spot price as the date approaches. It has to be. If December oil traded far above spot on the last day, anyone could buy the physical barrels and deliver them into the contract for free money, and that trade closes the gap. The expiry is what makes a futures price a price of the thing, rather than a number two people made up.
Delete it, and the anchor goes with it. A contract that never settles has no date on which anyone can force it back in line, so in principle it could drift away from spot and stay there. The perpetual needs a replacement tether, and it uses one that is constant instead of eventual.
Left: three dated futures, each dragged onto spot as its own settlement arrives. Right: a perpetual, which never settles and is instead pulled back toward spot by a payment that fires three times a day, forever. Same job, and the second one is a cost rather than a clock.
The funding rate, in one paragraph
Every 8 hours — on the big venues at 00:00, 08:00, 16:00 UTC — the exchange looks at where the perpetual is trading relative to spot. If the perp is above spot, longs pay shorts. If the perp is below spot, shorts pay longs. The payment is a percentage of your position, it goes to the traders on the other side rather than to the exchange, and it repeats 3 times a day for as long as you hold.
The incentive does the tethering. When a perp trades rich, being long costs money every eight hours and being short earns it, so some longs close and some shorts open until the gap shuts. Nothing forces convergence the way an expiry does — the perp is genuinely free to sit above spot — but it becomes progressively more expensive to be the reason it does.
The published formula on the large venues is smaller than its reputation: funding = premium + clamp(interest − premium, ±0.05%), then capped. The interest component is 0.01% per interval. So when the perp is sitting exactly on the index and nothing at all is happening, funding does not go to zero — it settles at that 0.01%. Hold that thought, because it is the number that does the damage.
Not a new idea, and not originally a crypto one
Robert Shiller proposed perpetual futures in the Journal of Finance in 1993 — a claim on an index that never settles, held in line by a periodic cash payment rather than a delivery date. He was trying to create tradable markets in things with no observable price, like residential property. Crypto exchanges picked the design up two decades later for a different reason: it removes the rollover, and round-the-clock markets hate admin.
What funding actually costs
Here is where the instrument gets people, and it is arithmetic rather than anything exotic. Take the worked example this article runs on: $1,000 of margin, 10× leverage, so $10,000 of Bitcoin exposure, entered at $100,000.
In a quiet market, funding is 0.01% per interval. On $10,000 of exposure that is $1.00 a payment. Nobody has ever closed a position over $1.00. But it is $3.00 a day, and it is charged on the $10,000, while it comes out of the $1,000. That is the trapdoor: funding is measured against your position and paid out of your deposit, so leverage multiplies it by exactly as much as it multiplies your price exposure.
Run it forward and the 0.01% that looked like nothing turns into 10.95% a year on the exposure — which at 10× is 110% of your margin. In a market where nothing is happening, funding alone would empty the account in about 333 days. That figure is what the rate would cost if it held for a year, not a forecast; funding moves constantly and no rate stays put that long. But the size of it is real, and it is the size people miss.
Each bar is one market condition on the same $10,000 position. The first bar is a market where nothing is happening. The last is the counter-case — a crowded short market, where a long collects. The fourth is the venue's ceiling, which is pinned at 0.75× the maintenance margin rate — the same number that decides when you get liquidated.
| The market | Rate per 8h | Per day | A year of it, vs your margin | Margin gone in |
|---|---|---|---|---|
| Quiet market | 0.01% | −$3.00 | −110% | 333 days |
| Leaning long | 0.03% | −$9.00 | −328% | 111 days |
| Crowded long | 0.10% | −$30.00 | −1095% | 33 days |
| At the cap | 0.375% | −$112.50 | −4106% | 9 days |
| Crowded short | −0.05% | +$15.00 | +548% — you collect | never — funding pays you |
The annual column is what the rate would cost if it held for a year — a way to feel the size of a number too small to respect, not a prediction. Funding mean-reverts hard, which is precisely why the quiet-market row is the interesting one.
The row that should stop you is not the bottom one. It is the first: quiet market. Nothing is going on, the perp is sitting on the index, and the position is still paying rent at a rate that would consume the whole stake inside 333 days. Get a genuinely crowded market — 0.10%, which happens in every strong trend — and the same position is gone in 33 days.
Funding is not the same as your broker's overnight fee
This is worth separating, because it looks identical on a statement. A CFD charges overnight financing: your broker lends you the exposure and bills you for it, typically a benchmark rate plus a markup they choose and keep. Our CFD explainer covers that cost and the counterparty question underneath it.
Perp funding is a different animal wearing the same coat. It is set by the market rather than by the venue, the exchange does not receive it, and it goes to the traders on the other side of your trade. Which means it can be negative — when the crowd is short, being long pays you. No CFD desk has ever paid a client for holding a position overnight.
CFD overnight financing
A fee your broker sets and keeps.
- Benchmark rate plus the broker's markup
- Paid to the broker, always
- Essentially never in your favour
- Charged once a day, at the broker's cut-off
Perpetual funding
A payment the market sets and your counterparty receives.
- Derived from the perp's premium to spot
- Paid to the other side of the trade
- Negative when the crowd is on the other side — then you collect
- Settled 3 times a day, at fixed UTC times
Learn it by doing
Reading about it is one thing — it clicks when you do it. Learn it hands-on with free, interactive lessons on TradeWize.
Try the free lesson →A perp quotes three prices, and only one can liquidate you
Open a perp on any venue and there are several numbers on screen that are all nearly the same and are not interchangeable. Confusing them is the most expensive beginner mistake on the instrument.
The last price is the one on the ticker and the one your chart is usually drawing. It is also the one that means least: it is a single venue's most recent trade, and a large enough order can move it on its own. Here it is running 0.42% above spot because longs are crowded — which, incidentally, is exactly the premium that makes funding positive.
The mark price is the one that matters. Your unrealised profit is marked against it and your liquidation is triggered by it, and it is built from the multi-exchange index rather than from this venue's order book. The reason is defensive: if liquidations ran off the last traded price, anyone with enough size could shove one thin book through a cluster of liquidation levels, collect the forced sales, and let price snap back. Anchoring to an index makes that attack cost the price of moving the entire spot market instead.
Which is why the wick did not liquidate you
New derivatives traders regularly watch a candle stab clean through their stated liquidation level and find the position still open. Nothing went wrong. The chart plots the last traded price; the liquidation engine reads the mark price. The two come apart exactly when it matters most — during a fast move on one venue — so judging your distance to liquidation from the candles can be wrong in either direction.
Liquidation arrives before your money runs out
Most people work out their wipe-out level as 100 divided by their leverage: 10% at 10×, 1% at 100×. That is the number our leverage explainer uses, and it is the right first approximation. The real one is closer.
The venue keeps back a maintenance margin — a slice of the position it will not let you lose — so it closes you while there is still something left to close. Take a 0.5% maintenance rate — this article's stated assumption, since the real tiers differ by pair and by venue and move around. On that assumption the 10× long entered at $100,000 is liquidated at $90,500, a 9.5% move rather than the 10% the simple sum promised. Every rung of the ladder loses the same 0.5% of room.
That buffer is not the venue being greedy. It is what stops the forced sale coming up short and leaving the exchange holding your loss. But it does mean the room you think you have is slightly less than the room you actually have, and at high leverage 'slightly' is most of it.
Solid bars are the real liquidation distance; the dashed outline is the naive 100 ÷ leverage line. At 2× a long survives a 49.5% fall. At 100× the entire position lives inside 0.5% — less than Bitcoin routinely moves overnight.
Read the bottom rung honestly. At 100× the position is closed by a 0.5% move, and Bitcoin covers 0.5% while you are asleep on a slow Tuesday. That is not a trade with a tight stop. It is a coin flip with a fee, and the fee is the funding table above.
Both clocks, one slider
The two halves of this article are usually taught separately, and separating them is why the instrument surprises people. Leverage sets the price that ends the position suddenly. It also sets the speed of the meter that ends it slowly. One slider moves both, by the same multiple, at the same time.
You are long $1,000 of margin on a Bitcoin perp at $100,000. One slider sets your leverage, the other sets what the market is charging to be on your side. Watch both answers move together.
Illustrative. Fees and slippage are ignored, the maintenance margin is a stated 0.5% rather than a quote from any venue’s tier table, and the annual figure is what this rate would cost if it held for a year — a way to feel its size, not a forecast, because no funding rate stays put that long. Now do the one thing the two panels are side by side for: drag leverage from 10× to 50×. The room on the left shrinks from 9.5% to 1.5%, and the countdown on the right shortens by exactly the same multiple. One slider, both clocks.
That symmetry is the part worth taking away. Leverage is usually sold as a decision about how big the win could be, and it is really a decision about two deadlines at once: how small a move ends the trade, and how long the trade can afford to be right slowly. Traders who size a position by the first number alone are the ones an ordinary week removes from the market.
Why liquidations arrive all at once
A liquidation is a market order. That is the whole mechanism and the whole problem. When a position is force-closed, the venue sells it into the same market that just fell, which pushes price a little further down, which can reach the next trader's liquidation price, which sells again.
On 10 October 2025 that chain ran to the end. Around $19bn of leveraged positions were force-closed inside 24 hours across about 1.6 million accounts — roughly $11,875 each, which tells you these were retail-sized positions, not institutional ones. Perpetual open interest fell 43% to $123bn in a day.
The lesson is not that a cascade is coming. It is that on a perp your position size is not private. Crowded leverage on one side is visible in the funding rate — that is precisely what a high positive rate means — and a crowd all liquidating at similar prices is a feature of the design rather than an accident of that particular week.
So should you trade them?
That is not our call to make, and this article is not advice. But the instrument does have an honest description, and it is this: a perpetual gives you round-the-clock leveraged exposure, long or short, with no rollover admin, in the deepest derivatives market crypto has. Those are real advantages and they are why perps dominate.
The price of them is two clocks. One is loud and everyone watches it — the liquidation price, 9.5% away at 10× and 0.5% away at 100×. The other is quiet and almost nobody does: a payment every eight hours that, at ordinary rates and ordinary leverage, costs more than the entire stake over a year. The first one ends a bad trade. The second one ends a good trade that needed time.
- Work out your liquidation price before you enter, and use the maintenance margin — the real one is closer than 100 ÷ leverage.
- Check the funding rate before you enter, and price a full year of it against your margin, not against your position. That is the number that tells you whether the trade can afford to wait.
- Know which price your venue liquidates against. It is the mark price, not the last trade on the chart.
- Treat a high positive funding rate as information, not just a bill: it means the crowd is long, and a crowd is a supply of forced sellers.
- Set a stop-loss well inside the liquidation price, so the trade closes on your terms rather than the venue's.
The one-line version
A perpetual future is a futures contract with the expiry deleted and a payment put in its place. The payment is charged on your whole position and paid out of your deposit, so leverage multiplies it — at 10× the ordinary quiet-market rate costs 110% of your margin a year. Leverage also decides your liquidation price, which sits closer than 100 ÷ leverage because the venue keeps a maintenance margin back. Two clocks, one slider.
What is a perpetual future?
A perpetual future ("perp") is a futures contract with no expiry date, so it can be held indefinitely. Because no settlement date forces its price back to spot, a funding payment does that job instead: every 8 hours, whichever side is trading at a premium pays the other. Perps are the most traded derivative in crypto.
How does the funding rate work?
Every 8 hours the exchange measures how far the perp is trading from the spot index and sets a rate. If the perp is above spot, longs pay shorts; if below, shorts pay longs. On the large venues the formula is the premium plus a clamped interest component of 0.01% per interval, capped at 0.75× the maintenance margin rate. The payment goes to the traders on the other side, not to the exchange.
Is the funding rate expensive?
It is much larger than it looks, because it is charged on your whole position and paid out of your margin. At 10× leverage, the quiet-market rate of 0.01% per interval works out at 110% of your margin over a year — about $3.00 a day on a $10,000 position. In a crowded market at 0.10% it would consume the same margin in about 33 days.
What's the difference between perpetual futures and normal futures?
Normal futures have a fixed expiry and are dragged toward spot as settlement approaches, so you must roll to keep exposure. Perpetuals never expire and use the funding rate to stay near spot instead. You never roll, but you pay or receive funding continuously.
What is the mark price and why does it matter?
The mark price is the reference the exchange uses to value your position and trigger liquidation. It is built from the spot index across several exchanges plus a smoothed basis, rather than from the contract's last trade on one venue. That is why a violent wick on your chart may not liquidate you — the chart shows the last price, the engine reads the mark price.
At what price does a perpetual position get liquidated?
Roughly entry × (1 − 1/leverage + maintenance margin rate) for a long. With a 0.5% maintenance rate, a 10× long opened at $100,000 liquidates around $90,500 — a 9.5% move, not the 10% that "100 ÷ leverage" suggests. The maintenance margin is the venue closing you while there is still something left to close.
Can you lose more than your deposit on a perpetual?
On the large venues, usually not: the maintenance margin buffer and an insurance fund are designed so the forced close covers the loss and your downside is capped at the margin posted. In a violent gap that can still fail, which is what insurance funds and, in the worst case, socialised-loss mechanisms exist to absorb.
Why do so many liquidations happen at once?
Because each forced close is a market order in the direction of the move that caused it, so it can push price into the next trader's liquidation level. On 10 October 2025, about $19bn of positions were liquidated in 24 hours across roughly 1.6 million accounts, and perpetual open interest fell 43% in a day.
Is perp funding the same as a CFD's overnight financing?
No. CFD financing is a fee your broker sets and keeps, and it is essentially never in your favour. Perp funding is set by the market, goes to the traders on the other side of your position, and turns negative when the crowd is on the other side — in which case holding pays you.
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