Perpetual futures explained

A perpetual future, often called a "perp", is a contract that lets you bet on a crypto asset's price rising or falling without owning the asset, and unlike a traditional futures contract it never expires. A funding mechanism keeps its price close to the underlying spot price.

How a perp differs from spot

When you buy bitcoin on the spot market, you own the coin and can withdraw it. With a perp, you hold a contract whose value moves with the price. You can:

• Go long: profit if the price rises, lose if it falls.
• Go short: profit if the price falls, lose if it rises.

Because you only need to post margin, a deposit that backs the position, perps usually allow leverage. Leverage means controlling a position larger than the money you put up.

No expiry, so what keeps the price in line?

Traditional futures have a settlement date, and their price converges to spot as that date nears. Perpetuals have no such date, so exchanges use funding payments: small, regular payments between long and short holders that nudge the perp's price back towards the spot index. The next lesson covers this in detail.

Mark price and index price

Exchanges typically calculate an index price from several spot markets and a mark price used to value open positions. Using the mark price, rather than the last traded price, helps stop one sudden spike on a single exchange from triggering liquidations unfairly.

Why traders use perps

Perps make it easy to go short, to hedge spot holdings, and to trade with less capital tied up. Those same features make them dangerous for beginners, because losses arrive just as fast as gains.

Key takeaways

• A perpetual future tracks an asset's price with no expiry date.
• You can go long or short, and you post margin rather than paying the full value.
• Funding payments keep the perp price close to the spot index.
• Leverage multiplies both gains and losses on your margin.