A perpetual futures contract (perp) is a derivative that tracks the price of an underlying asset (like BTC) without an expiration date. Unlike traditional futures that settle on a specific date, perps can be held indefinitely. They stay anchored to spot price through a funding rate mechanism where longs pay shorts (or vice versa) periodically to prevent the perp price from diverging from spot.
What Is a Perpetual Futures Contract (Mechanics Only)?
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The short version
A perp is a bet on price that never expires. If you go "long BTC perp at 5x," you profit when BTC goes up and lose when it goes down, amplified by your leverage. You pay (or receive) a small fee every 8 hours to keep the contract price aligned with the actual BTC spot price. You can close your position any time, no expiry date forcing you to settle.
How It Works
Structure: you do not buy/sell actual BTC. You hold a position (long or short) with a notional value, backed by collateral. Your P&L is calculated against the "mark price" (a fair value derived from multiple spot exchanges to prevent manipulation). Funding rate: every 8 hours (on most platforms), a payment flows between longs and shorts. If the perp is trading above spot (bullish sentiment), longs pay shorts (incentivizing shorts, pushing the perp price down toward spot). If below spot, shorts pay longs. Rate magnitude: typically 0.001%-0.03% per 8 hours (0.01-0.1% daily). Settlement: P&L is settled continuously (unrealized gains/losses adjust your collateral in real time). You can close at any time and realize profits/losses. Liquidation: same mechanics as margin trading, if your collateral drops below maintenance margin, the position is force-closed.
Holding a BTC perp long for 3 days
You open a 3x long BTC perp at $60,000. Position size: $30,000 (10,000 collateral × 3x). Day 1: BTC rises to $61,200 (+2%). Unrealized P&L: +$600 (2% × 3x × $10,000). Funding at 0.01% per 8h: you pay 3 × $3 = $9/day (longs paying shorts in bullish markets). Day 2: BTC stays flat at $61,200. P&L: +$600 minus $9 funding = +$591. Day 3: BTC drops to $60,600 (+1% from entry). P&L: 1% × 3x × $10,000 = +$300 minus $27 total funding = +$273. You close. Net profit: $273 on $10,000 collateral (2.73% in 3 days). If BTC had dropped 12% to $52,800: loss = 12% × 3x = 36% of collateral ($3,600). Remaining: $6,400. No liquidation (that would hit at ~-33% BTC move with 3x leverage).
What People Get Wrong
Perps are the same as owning the underlying asset
You do not own BTC when you hold a BTC perp. You hold a derivative contract. You cannot withdraw BTC from a perp position. You have price exposure only, no ownership, no on-chain asset, no staking rights, no governance.
Funding rate is a fee charged by the exchange
Funding is a peer-to-peer payment between longs and shorts. The exchange facilitates it but does not collect it (they charge separate trading fees). Sometimes you receive funding (when positioned opposite to the crowd).
Perps cannot trade at a different price than spot
They often trade slightly above or below spot. The funding mechanism pulls them back toward spot over time, but short-term deviations (basis) are normal, especially during volatile markets. Large sustained basis indicates extreme directional sentiment.
Keep Reading
Sources & Further Reading
- dYdX Documentation
Technical docs for decentralized perpetual futures trading
Questions People Also Ask
- Where can I trade perps?
- CEXs: Binance, Bybit, OKX, Bitget, Deribit (major platforms with deep liquidity). DeFi: dYdX (own chain), GMX (Arbitrum), Hyperliquid (own L1), Drift (Solana). CEXs require KYC; DeFi perps allow trading from a self-custody wallet without an account.
- What is the difference between perps and traditional futures?
- Traditional futures have an expiration date (e.g., BTC March 2025). At expiry, the contract settles. Perps never expire, you hold until you choose to close. Perps use funding rates for price anchoring; traditional futures converge to spot naturally as expiry approaches.
- Can I earn funding passively?
- Yes, holding the unfunded side collects funding from the other side. "Funding rate farming" (shorting perps while holding spot) captures funding income with hedged price exposure. This is called a carry trade or basis trade. Returns vary with market sentiment (typically 5-30% APR in bullish markets, near-zero or negative in bearish).