Perpetual futures, often simply called perps, are derivative contracts that allow traders to speculate on the price of an asset without owning it – and without an expiration date. They are among the most widely used trading instruments in the crypto market.
Perpetual futures track the price of an underlying asset such as Bitcoin or Ether and allow both long and short positions with leverage. Since the contracts never expire, a mechanism known as the funding rate is used to keep perpetual prices aligned with the spot market.
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How perpetual futures work
Unlike traditional futures, which expire and settle on a fixed date, perpetual futures can theoretically be held indefinitely. Traders deposit margin as collateral, open long or short positions, and can close, increase, or reduce them at any time.
To prevent perp prices from deviating too far from the spot market, the funding mechanism was introduced. Depending on market conditions, either long or short traders pay a periodic fee to the opposite side. If the perp price is higher than the spot price, longs pay shorts to push the price downward – and vice versa. This mechanism ensures that the price of a perpetual contract remains closely aligned with the real market price.
Role in the crypto market and associated risks
Perpetual futures have a major influence on the crypto market because they generate enormous trading volumes and leverage. Many traders use them for short-term speculation or to hedge spot holdings. However, they carry significant risks: even small price movements can trigger liquidations, especially when high leverage is used.
Perp markets often react faster and more sharply than spot markets, as liquidation cascades, funding fluctuations, and algorithmic trading can amplify price dynamics. Platforms such as Binance, Bybit, OKX, and dYdX are among the leading venues for these instruments, processing billions in daily volume.
