What is a perpetual contract in crypto?
A perpetual contract, usually called perpetual futures or a “perp”, is a crypto derivative that lets you bet on the price of a coin going up or down, often with leverage, without owning the coin and without an expiry date. A funding payment between buyers and sellers every few hours keeps the contract price close to the spot price. It is a high-risk product: most retail traders lose money with leveraged derivatives, and in the EU they are restricted.
What are perpetual futures contracts?
Perpetual futures contracts are a type of derivative contract that tracks the price of an underlying asset, such as bitcoin or ether. You never receive the coin itself. You only win or lose the difference between the price at which you open and close your position, settled in cash or stablecoins.
They are also called perpetual swaps. The first well-known version was launched by the exchange BitMEX in 2016, and perpetual futures trading has since become one of the most traded products in crypto markets. Bitcoin perpetual futures are the most common example.
How do perpetual futures work?
Perpetual futures allow traders to take long and short positions:
- Long positions profit if the price rises.
- Short positions profit if the price falls.
To open a perpetual futures position, you post margin: collateral that covers possible losses. With leverage, that margin lets you control larger positions with less capital. With 10x leverage, €500 of margin opens a €5,000 position. Every price move is multiplied by ten, in both directions.
The exchange tracks your position constantly. If losses bring your margin below the maintenance margin, the exchange closes your position automatically. That is called liquidation.
Why is there no expiration date?
Traditional futures contracts have a fixed expiration date. On that date the contract settles, and anyone who wants to keep the trade open must roll it into a new contract, which costs time and fees. Perpetual futures remove that step: unlike traditional futures contracts, a perpetual can be held indefinitely.
Without an expiry date, though, there is nothing that forces the perpetual futures price back to the spot price. That is the job of the funding rate.
How does the funding rate work?
The funding rate is a periodic payment exchanged between long and short position holders, often every eight hours, on some platforms every hour. The funding rate mechanism keeps the contract price close to the spot price:
- When the funding rate is positive, the perpetual futures price is above the spot price. Longs pay shorts, which makes going long more expensive and pulls the price down.
- When the funding rate is negative, the contract trades below spot. Shorts pay longs.
The rate is usually calculated from a premium index (the difference between the contract and spot price) plus a small interest rate component. The funding rate page explains it in more detail.
A simple funding rate calculation
Say you hold a €5,000 long position and the funding rate is 0.01% every eight hours. You pay €5,000 × 0.01% = €0.50 per period, or €1.50 a day. Over 30 days that is €45, whether the trade makes money or not. In heated markets the rate can be several times higher.
A worked example: leverage and liquidation risk
Here is how price movements hit a leveraged perpetual futures position, with illustrative numbers:
- You post €500 of margin and open a 10x long on bitcoin: a €5,000 position.
- The taker fee to open is 0.05% of €5,000 = €2.50 (the tier-1 rate on Kraken futures, checked 23 October 2026). Closing costs the same again.
- If bitcoin rises 5%, the position gains €250, a 50% return on your margin before fees and funding.
- If bitcoin falls 5%, you lose €250, half your margin.
- If bitcoin falls a little under 10%, your remaining margin drops below the maintenance margin and the position is liquidated. Your €500 is gone, and price moves of 10% can happen in hours in the cryptocurrency market.
High leverage makes liquidation risk the central fact of perpetual futures trading. The higher the leverage, the smaller the move that wipes you out.
Perpetual futures vs spot trading and traditional futures
| Spot trading | Traditional futures | Perpetual futures | |
|---|---|---|---|
| You own the coin | Yes | No | No |
| Expiration date | None | Fixed expiration date | None |
| Leverage | No (on spot) | Yes | Yes, often high |
| Ongoing cost | None after buying | Rollover at expiry | Funding payments |
| Can lose more than the move | No | Yes, via margin | Yes, via liquidation |
Spot trading suits people who want to own crypto for the long term. Perpetual futures are built for short-term traders who want to speculate on price movements or hedge an existing holding.
Why traders use perpetual futures
Traders use the perpetual futures market for three main reasons: continuous trading around the clock without rollovers, the ability to profit from falling prices with short positions, and hedging, for example a miner shorting bitcoin to protect against a price drop. Major perpetual futures markets are also very liquid.
None of that makes them suitable for most people. Leverage multiplies losses as well as gains, and funding costs add up over time.
Risks of perpetual futures trading
The key risks are clear:
- Most retail traders lose money. Leveraged derivatives lose money for the majority of retail clients. As an example, Bitpanda states that 78.5% of retail client accounts lose money when trading CFDs with its leveraged product.
- Liquidation. A move against you of a few percent can wipe out your margin, especially in high market volatility.
- Funding costs. Holding a position for weeks can cost more than the trade earns.
- Platform risk. Many perpetual futures are traded on offshore exchanges without an EU licence, with no regulator to turn to if something goes wrong.
How traders manage perpetual futures risk
Careful risk management starts with low leverage or none at all. Isolated margin limits the loss to the margin in one position, while cross margin uses your whole account balance as collateral, so one bad trade can drain everything. A stop-loss order closes a position before liquidation, but in fast markets it can fill at a worse price. Our guide to derivatives covers these tools in more depth.
Perpetual futures in the EU: restricted for retail
Perpetual futures are derivatives, so in the EU they fall under MiFID II, not MiCA. A provider needs an investment firm licence to offer them to EU residents, and leveraged products for retail clients come with restrictions: crypto CFDs, for example, are capped at 2:1 leverage, with margin close-out rules and negative balance protection. Many large exchanges have switched off derivatives for EU residents entirely, and a MiCA licence alone does not allow them.
In the US, the Commodity Futures Trading Commission regulates futures, and most offshore exchanges that offer perpetual futures don’t accept US customers.
Who should avoid perpetual futures?
Avoid perpetual futures if you are new to investing, if you want to own crypto for the long term, or if you can’t watch positions closely. If you still want to trade them, use only a provider licensed for derivatives in your country, start with an amount you can afford to lose completely, and keep leverage low. This is not investment advice, and crypto-assets can lose all of their value.
Related terms
Questions people ask
What does a positive funding rate mean?
A positive funding rate means the perpetual futures price is above the spot price, so traders with long positions pay traders with short positions. It usually shows that more traders are betting on rising prices with leverage.
How long can you hold a perpetual contract?
As long as you like, because perpetual futures have no expiration date. In practice you pay or receive funding every few hours, and the position is closed automatically if losses eat through your margin.
Is a perpetual the same as a futures contract?
It is a type of futures contract, but without an expiry date. Traditional futures settle on a fixed date; perpetual futures stay open indefinitely and use funding payments to keep their price close to the spot price.
Can you lose more than you put in with perpetual futures?
On most platforms your loss is limited to the margin in the position, because it is liquidated first. That can still mean losing your whole stake within hours. Under cross margin, other funds in your account can be used to cover losses too.
Can EU residents trade perpetual futures?
Only through providers licensed to offer derivatives in the EU, which is a MiFID II licence, not a MiCA one. Many large exchanges have switched off derivatives for EU residents, and leveraged products for retail clients are restricted.