Crypto perpetual futures are derivatives that track an underlying asset without a fixed expiration date. They allow eligible traders to take long or short exposure and use leverage, but introduce funding payments, liquidation and basis risk that do not exist in ordinary spot ownership.
Long and short positions
A long position generally benefits when the contract price rises; a short generally benefits when it falls. The trader owns a derivative position rather than necessarily owning the underlying cryptocurrency. Contract specifications determine settlement asset, size and eligible collateral.
Why perpetual contracts need funding
Because there is no expiry forcing convergence, exchanges use periodic funding payments between long and short holders to encourage the contract price toward the spot index. When funding is positive, longs commonly pay shorts; when negative, shorts commonly pay longs. Rates change and can materially affect longer-held positions.
Mark price and liquidation
Platforms often use a mark price derived from an index and funding information to calculate unrealized profit and liquidation risk. This can reduce liquidation caused by one abnormal last trade. Traders must still verify which price triggers stops and which price determines liquidation.
Leverage magnifies small moves
Higher leverage reduces the adverse move required to threaten collateral. Fees and funding apply to position exposure, making them large relative to deposited margin. A position can be directionally correct later but liquidated before the anticipated move occurs.
Key checks before opening a contract
- Contract size, quote currency and settlement asset.
- Maximum leverage and maintenance-margin tiers.
- Funding frequency and current estimated rate.
- Index composition and mark-price method.
- Liquidation, insurance fund and auto-deleveraging rules.
Perpetual futures are not for everyone
They can support hedging and capital-efficient exposure, but the complexity creates additional ways to lose. New traders should use educational or demo environments where available and begin with small exposure. Product access may be restricted by location and eligibility.
A perpetual contract should be entered with defined size, invalidation and maximum holding cost. Understanding funding and liquidation is more important than selecting a high leverage number.