What Are Perps? Perpetual Futures Explained
Updated · 4 min read
Perps (perpetual futures) are futures contracts that never expire. You go long or short an asset with leverage and hold for as long as your margin lasts. Instead of converging to spot at expiry, a perp stays close to the spot price through funding payments exchanged between longs and shorts, typically every hour or every eight hours.
- A perp tracks an asset's price with no expiry date, no delivery and no need to roll positions.
- Funding payments pull the perp toward spot: when the perp trades above spot, longs pay shorts; below spot, shorts pay longs.
- Leverage is chosen by you up to the venue's cap, and positions are marked to a mark price, not the last trade.
- If your equity falls below the maintenance margin, the position is liquidated.
- Perps are the most traded instrument in crypto and most crypto prop firms are built around them.
How a perpetual future works
A regular futures contract is an agreement to buy or sell an asset at a set price on a set date. Because that date exists, the futures price and the spot price are forced together at expiry. A perpetual future removes the date. You can hold it indefinitely, so the exchange needs another way to stop the contract drifting away from the real price. That mechanism is funding.
- You post collateral (margin), usually USDC or USDT.
- You open a long (profit if price rises) or a short (profit if price falls) worth several times your margin.
- Your profit and loss updates continuously against the mark price.
- Every funding interval you either pay or receive funding, depending on your side and the sign of the rate.
- You close whenever you want, or the exchange closes you if losses eat through your maintenance margin.
On most venues one contract equals one unit of the underlying. On Hyperliquid, for example, a BTC perp contract is 1 BTC, collateral is USDC, and there is no delivery or expiry because funding is paid every hour.
Why funding keeps perps near the spot price
If more traders want to be long than short, the perp trades at a premium to spot. The funding rate turns positive and longs pay shorts. That makes holding a long more expensive and a short more attractive, which pushes the perp back down toward spot. The reverse happens when the perp trades at a discount.
Funding is peer-to-peer
On most exchanges the exchange doesn't collect funding. It moves from one side of the market to the other. See funding rates explained for the formula and a worked example.
A worked example
Long BTC with 5x leverage
- BTC mark price: $100,000. You post $2,000 margin at 5x.
- Position size: $10,000 notional = 0.1 BTC.
- BTC rises 3% to $103,000 → PnL = 0.1 × $3,000 = +$300 (+15% on margin).
- Funding is +0.01% per hour and you hold 24 hours → you pay ≈ $10,000 × 0.01% × 24 = $24.
- Net ≈ +$276 before trading fees. A 3% drop instead would cost ≈ $300 plus funding.
Leverage multiplies both directions. Fees and funding are charged on the notional size ($10,000 here), not on your $2,000 margin. That's why costs feel larger than they look on a leveraged account.
Where perps came from
Economist Robert Shiller proposed perpetual futures in 1992 as a way to create derivatives markets for hard-to-trade assets. The first live crypto version was BitMEX's XBTUSD perpetual swap, launched on May 13, 2016 with up to 100x leverage. It became the template for every crypto perp since. BitMEX itself delisted XBTUSD on September 16, 2026, as part of closing the exchange. See the history of perpetual futures.
Risks to understand before trading perps
- Liquidation: a move against you at high leverage can close the position and cost your margin. Read liquidation price explained.
- Funding drag: holding the crowded side for days can cost more than trading fees.
- Mark vs last price: liquidations and many stop orders trigger on the mark price, which can differ from the chart. See mark price explained.
- Venue risk: offshore exchanges and DEXs can halt, delist or fail, as BitMEX's 2026 closure showed.
- Regulation: US residents can't use most offshore perp venues. US-regulated perps exist on Coinbase Derivatives. See perpetual futures in the US.
Perps and prop firms
Crypto prop firms sell evaluations where you trade perps on a simulated account. Pass the profit target without breaking the drawdown rules, and you get a funded account and a share of the profits. The firm's rules, usually a 3–5% daily loss limit and a 5–10% max drawdown, bite long before exchange liquidation would. See how crypto prop firms work and compare every perps prop firm.
Frequently asked questions
What does 'perp' mean in crypto?
'Perp' is short for perpetual futures (also called a perpetual swap): a leveraged futures contract with no expiry that tracks an asset's price through periodic funding payments.
Do perpetual futures ever expire?
No. Standard perps never expire. The exception is US 'perpetual-style' futures on Coinbase Derivatives, which technically have a five-year expiry but use hourly funding to behave like perps.
Are perps the same as options?
No. An option gives the right, not the obligation, to trade at a strike price and has a fixed expiry. A perp is a linear exposure: profit and loss move one-for-one with the price, times your size.
Can you lose more than you deposit on perps?
On most crypto venues, losses are capped at the margin in your account because positions are liquidated first. Venues use insurance funds, backstop liquidators or auto-deleveraging to absorb losses beyond that.
Why are perps so popular?
They trade 24/7, never need rolling, allow high leverage, and let you short as easily as you go long. Perps account for the large majority of crypto derivatives volume.
Sources
- Wikipedia — Perpetual futures
- BitMEX — Announcing the launch of the perpetual XBTUSD leveraged swap (2016)
- Hyperliquid Docs — Contract specifications
- Hyperliquid Docs — Funding
Educational content, not financial advice. Perps and prop evaluations are high-risk; firm rules change, so check each firm's current terms.
Keep reading
Perps basics
Perpetual Futures vs Futures: 9 Differences That Matter
Perps basics
Funding Rates Explained: How Perp Funding Works (With Formula)
Leverage, margin & liquidation
Liquidation Price Explained: How to Calculate It on Perps
Perps prop firms
How Crypto Prop Firms Work: Evaluations, Funded Accounts and Payouts