How Perpetuals Work
Perpetual contracts track the price of an underlying asset (e.g., BTC) through the funding rate mechanism:
- When the perp price > spot price: Longs pay shorts (positive funding)
- When the perp price < spot price: Shorts pay longs (negative funding)
- This incentive mechanism keeps the perp price close to spot
Key Features
- No expiry: Hold as long as you have sufficient margin
- Funding rate: Periodic payments every 8 hours
- Mark price: Used for liquidation calculations
- High leverage: Up to 125-200x on major exchanges
- 24/7 trading: Available around the clock
Perpetual vs Traditional Futures
| Feature | Perpetual | Traditional Futures |
|---|---|---|
| Expiry | None | Fixed date |
| Funding | Every 8 hours | None |
| Settlement | Continuous | At expiry |
| Basis | Minimal (funding keeps it close) | Can have significant premium/discount |
| Popularity | Dominant in crypto | Common in traditional markets |