BeaconUnderstanding Perpetual Futures Contracts
Perpetual futures, commonly known as "perps," are derivative contracts that allow traders to speculate on the price of an asset without actually owning it. Unlike traditional futures contracts that have a fixed expiration date, perpetual futures never expire. This innovation was popularized in the cryptocurrency markets and has since become the dominant trading instrument, accounting for the vast majority of crypto trading volume globally.
When you open a perpetual futures position, you are entering an agreement to exchange the difference in the asset's price between when you open and close the trade. If you go long (buy) and the price rises, you profit. If you go short (sell) and the price falls, you profit. The contract itself is settled in a stablecoin like USDC, meaning you never need to handle the underlying cryptocurrency.
Perpetual futures are available on both centralized exchanges and decentralized platforms like Hyperliquid. You can explore the full range of available markets on our markets page.
How Perpetual Futures Differ from Traditional Futures
Traditional futures contracts, like those traded on the CME for commodities or equity indices, have a set expiration date. When the contract expires, it settles either physically (delivery of the underlying asset) or in cash. Traders who want to maintain exposure must "roll" their position into the next contract period, which creates additional costs and complexity.
Perpetual futures eliminate this rollover process entirely. Because there is no expiration, traders can hold positions for as long as they like - seconds, days, or months. This simplicity is one reason perps became so popular in crypto markets, where 24/7 trading makes contract management even more complex.
The trade-off is that perpetual futures require a unique price-anchoring mechanism. Without an expiration date forcing convergence with the spot price, there would be no guarantee that the perpetual price stays close to the actual market price. This is where the funding rate comes in.
The Funding Rate Mechanism
The funding rate is the critical innovation that makes perpetual futures work. It is a periodic payment exchanged directly between long and short traders, designed to keep the perpetual contract price tethered to the underlying spot price.
When the perpetual price trades above the spot price (indicating bullish sentiment), the funding rate is positive, and long position holders pay short position holders. This creates a cost for being long and an incentive for being short, which puts downward pressure on the perpetual price. Conversely, when the perpetual trades below spot, the funding rate turns negative, and shorts pay longs.
On Hyperliquid, funding payments are calculated and exchanged every eight hours. The rate is typically a small percentage of your position size, but it can spike during periods of extreme market sentiment. Understanding how funding rates work is essential for managing the cost of holding perpetual positions, and you can calculate your expected funding costs using our funding rate calculator.
Advantages of Trading Perpetual Futures
Perpetual futures offer several advantages that make them attractive to traders at all experience levels. The most significant is leverage - the ability to control a large position with a smaller amount of capital. On platforms like Hyperliquid, traders can access up to 50x leverage on major assets, meaning a $1,000 margin deposit can control a $50,000 position.
Short selling is another major benefit. In spot markets, you can only profit when prices go up. With perpetual futures, you can just as easily profit from price declines by opening a short position. This makes perps an excellent tool for hedging - if you hold a portfolio of crypto assets, you can open short perpetual positions to protect against downside risk.
Additionally, perpetual futures markets typically offer deeper liquidity and tighter spreads than spot markets, especially on high-volume platforms. The no-expiry feature means you never need to worry about contract rollovers, and stablecoin settlement simplifies accounting and risk management.
Risks and Considerations
While perpetual futures are powerful instruments, they come with significant risks that every trader must understand. Leverage amplifies losses just as much as it amplifies gains. A 50x leveraged position will be liquidated with just a 2% adverse price move. Liquidation means your margin is seized, and you lose your entire position. You can calculate exactly where your liquidation price falls using our liquidation calculator.
Funding rate costs can also erode profits over time. Holding a long position during a bullish market may feel natural, but if funding rates are significantly positive, you are paying a premium every eight hours. Over days or weeks, these costs compound and can turn a profitable trade into a losing one.
Market volatility in crypto is notoriously high. Flash crashes, cascading liquidations, and sudden funding rate spikes are all real risks. Successful perpetual futures traders use strict risk management: appropriate position sizing, stop-loss orders, and never risking more capital than they can afford to lose. Learning about liquidation mechanics is a critical first step.