Trading term

What is Perpetual futures?

A perpetual future ('perp') is a futures contract with no expiry date — it can be held indefinitely. To keep its price anchored to the spot market without a settlement date, it uses a periodic 'funding rate' payment between longs and shorts. Perpetuals are the dominant instrument in crypto derivatives trading.

Ordinary futures expire, forcing traders to roll to keep exposure. Perpetual futures remove that friction: there's no expiration, so a position can be held for as long as you like, with the usual leverage and long-or-short flexibility. This convenience is why perpetuals — pioneered in crypto — have become the most-traded derivative in that market, often dwarfing spot volume.

Without an expiry to force convergence to spot, a perp needs another mechanism to stop its price drifting away from the underlying: the funding rate. At regular intervals (often every eight hours), longs and shorts exchange a payment based on how far the perp trades from spot. When the perp is above spot, longs pay shorts, discouraging longs and nudging the price down; when below, shorts pay longs. This constant tug keeps the perpetual tethered to the spot price. The trade-off for never having to roll is paying (or receiving) funding continuously — a cost or income that can add up on positions held a long time.

Perpetual futures — no expiry
No expiry — held indefinitely, with periodic funding∞openfunding every 8hthe funding rate replaces an expiry date to keep the perp near spot

A perp never expires, so it can be held indefinitely. In place of a settlement date, a periodic funding payment between longs and shorts keeps its price tethered to spot.

For example

You hold a long perpetual on Bitcoin with no expiry to worry about. Every eight hours, if the perp trades above spot, you (a long) pay a small funding fee to the shorts — say 0.01% of your position. Convenient to hold indefinitely, but the recurring funding is the price of never rolling.

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Why it matters to you

Perpetual futures are the engine of modern crypto trading — the instrument most leverage and speculation flows through — and their funding-rate mechanism is a genuinely novel solution to keeping an expiry-less contract tied to spot. Understanding perps (and their funding) is essential to understanding how crypto derivatives markets actually work.

⚠ Funding is a continuous cost

The appeal of never rolling hides an ongoing drain: funding payments recur every few hours, and in a strongly one-sided market the rate can be high. A leveraged position held for weeks against persistent funding can bleed a meaningful amount regardless of price. 'No expiry' doesn't mean 'no carrying cost.'

Frequently asked questions

What are perpetual futures?

Perpetual futures ('perps') are futures contracts with no expiry date, so they can be held indefinitely. To keep their price tied to spot without a settlement date, they use a periodic funding-rate payment between longs and shorts. They're the dominant instrument in crypto derivatives trading.

How do perpetual futures stay close to the spot price?

Through the funding rate. At regular intervals, longs and shorts exchange a payment based on how far the perp trades from spot: when the perp is above spot, longs pay shorts (pushing the price down); when below, shorts pay longs. This constant incentive keeps the perp tethered to spot.

What's the difference between perpetual and traditional futures?

Traditional futures have a fixed expiry and converge to spot at settlement, requiring rollover to maintain exposure. Perpetuals never expire and use the funding rate instead of convergence to stay near spot, so you can hold indefinitely but pay or receive funding continuously.

Why are perpetual futures popular in crypto?

They offer leveraged, long-or-short exposure to crypto with no expiry to manage and deep liquidity, which suits round-the-clock crypto markets. Their convenience and high leverage have made them the most-traded crypto derivative, often exceeding spot trading volume.

Related terms

BackwardationBackwardation is when futures prices are lower for later delivery dates — the futures curve slopes downward. It often signals tight near-term supply or strong demand for immediate delivery. For futures holders it creates a positive 'roll yield,' as they sell pricier near-term contracts and buy cheaper later ones.BasisBasis is the difference between an asset's futures price and its current spot (cash) price. It reflects carrying costs, supply and demand, and time to expiry — and it converges to zero as the contract nears expiration, since a future about to settle must match the spot price. Traders watch basis to gauge conditions and to hedge.CFD (contract for difference)A CFD (contract for difference) is a derivative where you and a broker agree to exchange the difference in an asset's price between opening and closing the trade. You never own the underlying — you simply profit or lose on the price move, with leverage. CFDs cover stocks, indexes, commodities and crypto, and are popular outside the US, where they're banned.ContangoContango is when futures prices are higher for later delivery dates — the futures curve slopes upward. It usually reflects the costs of storing and financing an asset until delivery. Contango creates a 'roll cost' for anyone holding futures over time, as they repeatedly sell cheaper near-term contracts and buy pricier later ones.
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