Perpetual futures (perps) are derivative contracts on an underlying asset such as Bitcoin or Ether that carry no expiry date, unlike classic futures. A periodic settlement payment instead holds their price near the underlying's spot price. This payment, the funding rate, flows between long and short positions rather than to the exchange.
Perpetual futures originated in crypto trading rather than on a traditional derivatives exchange. According to a CoinDesk investigation, Ben Delo derived the concept in 2015 from a principle of the foreign exchange markets. Delo co-founded the exchange BitMEX. A year later, the exchange listed XBTUSD, the first perpetual swap, on 13 May 2016. Today, centralized venues such as Binance and Bybit offer these contracts, as do decentralized protocols such as dYdX. Consequently, anyone holding a directional position for months does not have to roll an expiring position into a follow-up contract. Classic futures require exactly that.
How does the funding rate work in perpetual futures
A perpetual futures contract has no expiry date. It lacks the mechanism that pulls classic futures to the spot price at maturity. When one side of the market dominates, the order book price drifts away from the spot price. The funding rate applies at exactly this point. Exchanges first measure the premium index, the difference between the contract's order book price and the spot index price. In addition, an interest component captures the financing cost of the underlying asset.
Binance and Bybit combine both components through one base formula. It reads Avg. Premium Index + clamp(Interest Rate - Premium Index, 0.05%, -0.05%). The inner clamp caps the difference between interest rate and premium index at ±0.05%, not the rate itself. At Bybit, a second and outer clamp subsequently limits the rate. The default value of the interest component is 0.03% per day, which equals 0.01% per eight-hour interval. Moreover, both exchanges settle three times a day, at 00:00, 08:00 and 16:00 UTC.
The sign determines the direction. When the rate is positive, long positions pay short positions; with a negative rate, the flow reverses. The size of the payment follows the notional value of the open position, not the margin posted. Unlike the borrowing rate in margin trading, however, this funding rate is not a platform fee. Instead, it flows to the other side of the market.
A worked example of a funding payment
The following calculation walks through the Binance and Bybit formula for perpetual futures. It uses illustrative values, not live market data. Assume an average premium index of 0.02% and an interest component at the default of 0.01% per interval. First, subtracting the premium from the interest rate yields -0.01%. That value falls inside the clamp range of ±0.05% and thus stays unchanged.
Added to the premium, the result is a funding rate of 0.01%. As a result, a long position with a notional value of USD 10,000 pays USD 1 to the short side. The amount falls due at the next of the three daily settlement times. In a calm market, a single payment thus stays small. Still, the payment repeats for as long as the position stays open, and it adds up over weeks.
Why the funding parameters differ from venue to venue
No industry-wide standard funding formula exists for perpetual futures. Each venue sets its own interval, interest component and cap. The same market situation therefore triggers different payments on two platforms. The decentralized exchange dYdX, for example, settles hourly and divides the premium component by eight. In isolated markets, the dYdX interest component sits at 0.125 basis points per hour. That equals one basis point over eight hours.
Both venues follow the same principle for the cap and derive it from their margin rates. At dYdX, the cap on the eight-hour rate stands at 600% of the difference between initial and maintenance margin. For BTC-USD, that comes to 12%. Bybit, however, sets its limit under normal circumstances at 75% of the same difference. That limit reaches at most the maintenance margin rate.
A comparison of two funding rates is therefore meaningful only when both are normalized to the same time window.
| Parameter | Binance/Bybit | dYdX |
|---|---|---|
| Funding interval | 8 hours (00:00/08:00/16:00 UTC) | 1 hour |
| Interest rate component | 0.03% per day (0.01% per 8h), default | 0% (Cross), 0.125 bps/h (Isolated) |
| Formula | Avg. Premium Index + clamp(I - P, 0.05%, -0.05%) | Premium/8 + interest component |
| Cap | inner clamp ±0.05% on I - P; outer (Bybit) rate cap from the margin rates | 600% × (Initial - Maintenance Margin); BTC-USD 12%/8h |
Leverage and liquidations in perpetual futures trading
Traders take perpetual futures positions on margin. They post a fraction of the position value as collateral. That stake controls a multiple in notional terms, without giving them ownership of the underlying asset. Originally, BitMEX allowed leverage of up to 100x on XBTUSD.
Once the collateral drops below the maintenance level, the exchange closes the position by force. The higher the leverage, the smaller the price move needed to reach that point. Moreover, forced closures run as sales through the same order book in which the price is falling.
12 March 2020 provides a documented example. Within a single day, BitMEX liquidated positions worth more than USD 700 million while the Bitcoin price collapsed. The funding rate does tie the contract to the spot price. Yet it changes nothing about the leverage risk of the individual position.
How perpetual futures are regulated in the EU and Switzerland
In the EU, perpetual futures fall outside MiCA. Article 2(4)(a) of Regulation (EU) 2023/1114 excludes crypto assets that qualify as financial instruments under Directive 2014/65/EU (MiFID II). Perpetual futures belong to that group. Existing securities law remains the applicable regime.
On 24 February 2026, ESMA also reminded firms of their obligations. Crypto derivatives marketed as "perpetual futures" or "perpetual contracts" are accordingly likely to fall under existing rules. Those are the national CFD product intervention measures. Nevertheless, the reminder amounts to neither a final classification nor a ban. The measures include leverage limits, the margin close-out rule, negative balance protection and a ban on monetary and non-monetary incentives. For CFDs on cryptocurrencies, the leverage cap for retail investors has stood at 2:1 since 2018.
Switzerland, meanwhile, has no FINMA rule that explicitly names perpetual futures. The FINMA fact sheet on crypto-based assets, dated 1 May 2022, stays more general. If a business model covers securities trading, the provider must accordingly check whether it needs a license. Two statutes are relevant, the Financial Institutions Act and the Financial Market Infrastructure Act. This duty to examine applies to trading platforms regardless of the product.
