What Are Perpetual Futures? How Perps Trading Works

What a perpetual future actually is

A perpetual future, usually just called a perp, is a type of derivative contract. A derivative is any financial instrument whose value comes from the price of something else rather than the thing itself. With a perp, you're trading a contract that tracks the price of an asset like Bitcoin or Ethereum, without ever buying or holding the actual coins.

That distinction matters in practice. When you buy spot Bitcoin, you own the asset outright: it sits in a wallet, and its value moves however the market moves. When you open a perp position, you're holding a contract that pays out based on the price difference between when you opened it and when you close it. You get exposure to the price movement without the logistics of custody, and that setup is what makes leverage, short selling, and always-on positions possible in a way spot trading doesn't allow. If you want the basics of what cryptocurrency itself is before layering derivatives on top, our What Is Cryptocurrency? guide covers that ground.

No expiry date, and why that's useful

Traditional futures contracts, the kind that have existed in commodities and finance for well over a century, come with an expiry date built in. An oil futures contract might settle in March, and once that date arrives the contract closes out at whatever the price happens to be. If you want to keep a similar position open, you have to "roll" into a new contract, which costs fees and can create awkward pricing gaps between one contract and the next.

Perpetual futures remove that clock entirely. There's no settlement date written into the contract. You can open a position and hold it for a day, a month, or years, as long as you keep enough margin in your account to support it. That's the "perpetual" part: the contract just keeps running until you choose to close it, or the market forces you out (more on that shortly). In practice, that means you don't have to think about contract calendars or rollovers just to hold a view on where a price is headed. You open the trade, and it stays open on your terms.

Long vs short: betting on direction

Opening a perp position means picking a side. Go long and you're betting the price will rise: you profit if it goes up and lose if it goes down. Go short and you're betting the opposite, that the price will fall, and you profit as it drops. Shorting is a big part of what makes perps appealing beyond simple spot trading. On a spot market, profiting from a falling price usually means you already had to own the asset first. With a perp, you can take a bearish view on an asset without ever holding it.

Leverage: controlling more with less

Leverage is what lets you control a larger position than your account balance would normally allow. You put up a fraction of a position's value as margin, and the exchange effectively lets you control the rest of the exposure on top of it. Use 10x leverage on a $1,000 deposit and you're controlling a $10,000 position.

The upside is obvious: a 5% move in your favor now moves your account by roughly 50% instead of 5%. The downside is the exact same multiplier working against you. A 5% move the wrong way eats roughly half your margin, and higher leverage shrinks that cushion even further. We're keeping this section intentionally basic. A deeper guide covering margin types, like isolated versus cross margin and how each changes your risk, is coming soon.

How funding keeps the perp price anchored to spot

Removing the expiry date creates a problem. Traditional futures use their expiry to force the contract price toward spot: as settlement approaches, everyone knows the contract will close out at the spot price on that date, so the two prices converge naturally. Without an expiry, what stops a perpetual's price from drifting away from the actual spot price of the asset?

The answer is the funding rate. On a regular schedule (commonly every hour or every eight hours depending on the exchange), the exchange compares the perp's price to spot. If the perp is trading above spot, meaning demand from longs is pushing it up, longs pay a small fee directly to shorts. If the perp is trading below spot, shorts pay longs instead. That periodic payment nudges traders toward the side that pulls the price back in line, and it repeats for as long as a position stays open.

Funding is usually a small amount per payment, but it adds up the longer you hold a position, and it can flip between positive and negative as sentiment shifts. We're not getting into the APR math or carry-trade mechanics here. If you trade on Hyperliquid specifically and want the deeper breakdown, including how to read predicted rates and scan every market for the best opportunities, see Hyperliquid Funding Rates Explained.

Liquidation: what happens when the trade turns against you

Liquidation is the mechanism that keeps a losing leveraged position from spiraling into a loss bigger than the margin backing it. If the price moves against you enough that your remaining margin can no longer support the position, the exchange automatically closes it for you, whether you wanted it closed or not. You lose the margin tied to that position, and the trade ends there.

We're skipping the exact math (maintenance margin thresholds vary by exchange and by how much leverage you're using) and sticking to the concept: leverage cuts both ways, and there's a real floor beneath your position where it gets closed automatically, regardless of whether you think the price is about to turn back around.

Why perps took over crypto trading

Perpetual futures existed as a theoretical idea before crypto, proposed by economists decades before any exchange actually built one. They never caught on in traditional markets. Crypto is where they took off, for a few practical reasons:

• Markets never close. Crypto trades 24/7, with no exchange holidays or overnight halts, which fits naturally with a contract designed to never expire.
• No securities-law expiry requirement. Traditional futures are shaped by regulations that require fixed expiry and delivery terms. Crypto derivatives largely sit outside that framework, giving exchanges room to design contracts that just run indefinitely.
• Radical accessibility. Anyone with an internet connection and some funds can open a leveraged position in minutes, without the account minimums, approvals, or paperwork a traditional futures broker requires.

Add it all up and it's not surprising perps became one of the most heavily traded products in crypto, often outpacing spot trading volume many times over on major assets.

The risk you need to respect

None of this changes the basic math of leverage. It amplifies your losses exactly as much as your gains, and it's a well-known pattern that most leveraged retail traders underperform simply buying and holding the underlying asset over time. Funding payments, liquidations, and the psychological pull of a fast-moving leveraged position all tend to work against the average trader.

If you're going to trade perps, treat leverage as a tool for a specific view you understand and can afford to be wrong about, not as a way to make an otherwise average trade better. Start small, watch how funding and liquidation actually behave with real money on the line before sizing up, and never put in more than you're prepared to lose entirely.