Trading glossary
Learn what perpetual futures are, how funding rates keep prices anchored, and how these no-expiry derivative contracts differ from spot trading.
Perpetual futures, sometimes called perps, are derivative contracts that let traders take a position on an asset's price without owning the asset. Unlike traditional futures, they have no settlement or expiry date, so a position can, in principle, be held indefinitely. Their value is derived from an underlying market, and they are commonly traded with leverage that can amplify both gains and losses.
Because there is no expiry to force convergence, perpetual futures use a funding rate to keep the contract price near the underlying spot price. At regular intervals, traders on one side of the market pay a small fee to those on the other side, depending on whether the contract trades above or below spot. This mechanism nudges the perpetual price back toward the reference price.
Leverage means a position is backed by margin, and if the market moves against it beyond a threshold, the position can be liquidated, closing it and potentially losing the posted margin. Perpetual futures are complex, higher-risk instruments. This is educational information only, not financial advice, and derivatives can result in rapid and substantial loss of capital.
Regular futures have a fixed expiry and settle on a set date. Perpetual futures have no expiry and instead use periodic funding payments to keep their price aligned with the underlying spot market.
A funding rate is a recurring payment exchanged between long and short traders. It is positive or negative depending on whether the contract trades above or below spot, helping anchor the perpetual price to the underlying.
Liquidation occurs when a leveraged position's losses reduce its margin below a required level, prompting the position to be automatically closed. The trader can lose the margin committed to that position.