Perpetual futures (or "perps") are the most popular way to trade crypto derivatives. They let you bet on price without owning the asset, with no expiration date.
What Are Perpetual Futures?#
Traditional futures have an expiration date. You buy a contract that settles on a specific day. Perpetual futures removed that. They never expire. You can hold a position for as long as you want (or as long as your margin allows).
When you open a perp position, you're not buying or selling actual crypto. You're opening a contract that tracks the price. Think of it as betting on direction. If you go long and the price goes up, you profit. If you go short and the price goes down, you profit. You don't own the asset, you're just betting where it goes next.
How They Work#
Long: You think the price will go up. You open a long position. If ETH goes from $3,000 to $3,300, you make $300 per contract.
Short: You think the price will go down. You open a short position. If ETH goes from $3,000 to $2,700, you make $300 per contract.
Leverage: You choose how much leverage to use. 1x means no leverage, $1,000 controls $1,000. 10x means $1,000 controls $10,000. Higher leverage means higher risk and higher reward.
Here's the thing: leverage works both ways. At 10x, a 10% move against you wipes out your entire position. At 20x, it only takes 5%. At 50x, just 2%. And that's before fees. Factor in trading fees and funding, and your liquidation point is even closer than you think.
Funding Rate#
Since perps never expire, there needs to be something that keeps the perp price in line with the actual spot price. That's what funding does. Every few hours, one side pays the other depending on market conditions. If you're holding positions for longer than a few hours, funding is a cost you need to be aware of.
Why Traders Use Perps#
They let you trade both directions, long and short. You can use leverage for capital efficiency. There's no need to own or custody the asset. Major pairs have high liquidity. And you can hedge spot holdings.
The Risks#
Leverage amplifies losses just like gains. Liquidation can wipe your position instantly. Funding fees eat into profits on longer holds. And it's easy to overtrade and blow up.
Key Terms#
Mark Price: The fair price used to calculate unrealized PnL and liquidations. Prevents manipulation from sudden price spikes.
Entry Price: The price at which you opened your position.
Liquidation Price: The price at which your position gets liquidated. Depends on your leverage and margin.
Unrealized PnL: Profit or loss on your open position. It's not real until you close.
Realized PnL: Profit or loss after you close a position. This is actual money made or lost.
Perps are powerful but dangerous. They give you flexibility that spot trading doesn't, but they can destroy your account if you don't manage risk. Start small, use low leverage, and learn how they work before sizing up.
