What Are Perpetual Futures?

If you have only ever bought crypto on a spot exchange, perpetual futures can look like a different sport. The chart is the same, the coin is the same, but there are new words everywhere: margin, mark price, funding, liquidation. This guide explains what a perpetual futures contract actually is and how the core mechanics fit together.

Spot versus perpetual futures

When you buy on spot, you own the coin. If you buy 0.1 BTC at $60,000, you pay $6,000 and you hold 0.1 BTC. If the price halves, you still hold 0.1 BTC — you have lost value, but nothing is taken away from you.

A perpetual future (often called a perp) is a contract that tracks the price of a coin without you owning the coin. You and the exchange agree on a position — for example, long 0.1 BTC — and your profit or loss moves with the price. Three differences matter:

• No ownership. You cannot withdraw a perp position to a wallet. It is a contract settled in a quote currency, usually USDT.
• No expiry. Traditional futures expire on a set date. Perpetuals never expire; you can hold them as long as your margin allows.
• Leverage. You only post a fraction of the position value as collateral, called margin.

Long and short

Going long means you profit if the price rises. Going short means you profit if the price falls. On spot, making money from a falling market is awkward; on perps it is a single click, and that is one of the main reasons traders use them.

The profit and loss are symmetrical. A long of 0.1 BTC entered at $60,000 makes $100 if BTC rises to $61,000, and loses $100 if it falls to $59,000. A short of the same size does the exact opposite.

Margin and leverage

The position above is worth $6,000 (0.1 × $60,000). This is its notional value. With 10x leverage you post $600 of margin; with 20x you post $300. The exchange lends you the rest of the exposure in effect, but your profit and loss is still calculated on the full $6,000.

That is why leverage cuts both ways. A 1% move on a $6,000 position is $60. On $600 of margin that is a 10% gain or loss on the money you put up. At 20x, the same 1% move is 20% of your margin.

Two margin figures are worth knowing:

• Initial margin — what you need to open the position (notional ÷ leverage).
• Maintenance margin — the minimum you must keep. If losses eat your margin down to this level, the position is liquidated.

Mark price: the number that liquidates you

Every perp exchange shows at least two prices: the last traded price on its own order book, and the mark price. The mark price is built mainly from an index of spot prices across several major exchanges, with an adjustment for the funding basis. It exists so that a single thin order book cannot be pushed around to trigger liquidations.

Unrealised profit and loss and liquidations are normally calculated from mark price, not last price. In calm markets the two are almost identical. In a fast wick they can differ briefly — the last price might spike to a level where you expected to be liquidated while the mark price stays safely away, or vice versa. When you check how close you are to liquidation, check against the mark price.

How the perp stays close to spot

Because a perpetual never expires, nothing forces it to converge with spot at a settlement date. Exchanges solve this with the funding rate: a small periodic payment between longs and shorts. When the perp trades above spot, longs pay shorts; when it trades below, shorts pay longs. Funding is small per interval but adds up on long holds.

Liquidation in one example

Say you open a $6,000 long with $600 margin at 10x, entry $60,000. Ignoring fees, a 10% drop would wipe out the full $600. Because of maintenance margin, liquidation actually happens a little earlier — roughly 9.5% below entry, around $54,300, depending on the exchange's tiers. At 50x, the same calculation puts liquidation less than 2% away.

The key point: liquidation is not a stop-loss. It is the exchange closing your position because your collateral has run out, often with an extra fee. A well-planned trade has a stop-loss at a logical level well before the liquidation price, so liquidation is never the thing that ends the trade.

Costs to keep in mind

• Trading fees on entry and exit, charged on notional, not margin. A 0.02% taker fee on a $6,000 position is $1.20 each way.
• Funding every funding interval while the position is open.
• Slippage on market orders, especially in volatile moments or on smaller coins.

The takeaway

A perpetual future lets you trade either direction, with less capital tied up, for as long as you want. Mark price, maintenance margin and funding exist to keep it tethered to the real market. Understand them before you trade, and size positions by what you are willing to lose, not by the leverage on offer.

Leveraged trading carries a high risk of loss. This article is educational and is not financial advice.