Crypto Trading Deep Dive
Perpetual Futures: How They Work in Crypto
Microstructure, order books, perps, funding, and algorithmic execution.
In this lesson
- What makes a perpetual unique
- How it tracks spot
Key takeaways
- 1A perpetual future has no expiry date
- 2Funding payments keep it near the spot price
- 3Leverage amplifies both gains and losses
Lesson summary
A perpetual future is a derivative that tracks an underlying market without an expiry date.
Mental model
What perpetual futures really means
A perpetual future is a derivative that tracks an underlying market without an expiry date. Funding payments are the mechanism that keeps the contract near spot.
- What makes a perpetual unique
- How it tracks spot
Mechanics
How to reason about perpetual futures
Longs and shorts exchange funding depending on perp premium or discount.
Margin allows leveraged exposure with less upfront capital.
Mark price and maintenance margin decide liquidation risk.
- A perpetual future has no expiry date
- Funding payments keep it near the spot price
- Leverage amplifies both gains and losses
Example
A concrete perpetual futures example
If perps trade above spot and funding is positive, long traders may pay shorts until the premium becomes less attractive.
Common mistakes
Common mistakes with perpetual futures
A perp is not the same as owning the asset. Funding, leverage, liquidation, and exchange rules change the payoff.
Risk notes
What can go wrong with perpetual futures
High leverage, funding spikes, liquidation cascades, and low liquidity can create losses faster than spot trading.
- Explain why perps have funding.
- Find liquidation price.
- Account for funding in expected return.
Practice
Make perpetual futures stick
- Explain why perps have funding.
- Find liquidation price.
- Account for funding in expected return.
Review
Key terms
- Leverage
- Borrowed capital used to amplify a position — magnifying both gains and losses.
- Liquidation
- Forced closure of a leveraged position when margin can no longer cover its losses.
- Liquidity
- How easily an asset can be bought or sold without moving its price much.
- Margin
- Collateral posted to open and maintain a leveraged position.
- Perpetual Future
- A futures contract with no expiry, kept near spot price by funding payments.
Source notes
Editorial references
These references are starting points for verifying the mechanisms, risk checks, and product context behind this lesson.
Before you continue
Can you do these?
- Explain why perps have funding.
- Find liquidation price.
- Account for funding in expected return.
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Answer every question correctly to complete the lesson.
A perpetual future differs from a dated future because it…