What Is Perpetual Futures? No Expiry, Funding, and How Perps Work

Perpetual Futures in One Sentence

A perpetual future — often called a 'perp' — is a futures contract with no expiration date.

You can hold it as long as you have enough margin and are willing to pay or receive funding.

• No fixed expiry or settlement date
• Price is designed to track the underlying spot index closely
• Most popular format for crypto derivatives trading today

Why Crypto Markets Invented Perps

Traditional futures expire on a set date. Traders must roll positions to a new contract or close before settlement.

Crypto runs around the clock and moves fast. Perps remove the roll hassle and let positions stay open indefinitely.

• No quarterly roll or contract switch needed
• Simpler for traders who want continuous exposure
• Liquidity concentrates in one main contract per asset

How Perps Stay Close to Spot Price

Without an expiry date, nothing forces a perp to converge with spot at a deadline.

Instead, exchanges use a funding mechanism — periodic payments between long and short holders.

• When the perp trades above spot, funding is usually positive — longs pay shorts
• When the perp trades below spot, funding can turn negative — shorts pay longs
• These payments nudge the contract price back toward the index

Funding Rate Explained Simply

The funding rate is a small percentage applied to your position size at regular intervals, often every eight hours.

It is not a fee paid to the exchange. It transfers between traders on opposite sides of the market.

• Positive rate: long positions pay, short positions receive
• Negative rate: short positions pay, long positions receive
• Rate size reflects how far the perp price sits from the spot index
• High positive funding often signals crowded long positioning

A Simple Funding Example

Suppose you hold a long BTC perp worth ten thousand dollars and the funding rate is 0.01% for the interval.

You would pay one dollar in funding for that interval. A short holder of the same size would receive it.

Over many intervals, funding can become a meaningful cost — especially on large, long-held positions.

• Funding = position size × funding rate
• Paid or received regardless of whether the trade is profitable
• Check the predicted next funding rate before holding through an interval

Perps vs Quarterly (Dated) Futures

Quarterly futures expire on a fixed date and settle against an index price at that moment.

Perps never expire but charge ongoing funding. Each format suits different trading styles.

• Quarterly: fixed expiry, convergence built in, no recurring funding
• Perpetual: no expiry, funding replaces the expiry anchor
• Quarterly suits traders planning around a specific time horizon
• Perps suit continuous speculation and hedging without rolling contracts

What Else Differs in Practice

Beyond expiry and funding, perps and dated futures share most mechanics — margin, leverage, long and short.

Liquidity and fee tiers can differ between the two products on the same exchange.

• Perps usually have the deepest liquidity for major coins
• Quarterly contracts may have wider spreads on smaller assets
• Trading fees apply to both — compare maker and taker rates for each product
• Some exchanges offer coin-margined and stablecoin-margined perps

Checklist Before Trading Perps

Perps are straightforward once you understand funding. Use this list before opening a position.

• Do I know the current and predicted funding rate?
• Am I holding long through high positive funding without a reason?
• Have I compared perp fees against dated futures on this exchange?
• Is my margin mode set correctly for the risk I want?
• Do I understand that funding applies even if price barely moves?

FAQ: Perpetual Futures Questions

Common questions about how perps work and what makes them different.

• Can a perp expire? No — it continues until you close it or get liquidated.
• Who sets the funding rate? The exchange calculates it from the perp price vs the spot index.
• Is funding always a cost? No — you may collect funding if you hold the receiving side.
• Are perps riskier than quarterly futures? Not inherently, but ongoing funding and high leverage together can drain accounts quietly.

Quick Summary

Perpetual futures are non-expiring contracts that track spot price through a funding payment system.

Longs and shorts exchange funding at regular intervals to keep the contract aligned with the index.

Compared to quarterly futures, perps trade convenience and continuous exposure for recurring funding costs.

• Perp = futures with no expiry date
• Funding replaces expiry as the price anchor
• Compare trading fees and typical funding before choosing an exchange