What Are Perpetual Contracts? A Complete Guide

Perpetual contracts ("perps") are derivatives that track the price of an underlying asset without an expiration date. Traders can hold a long or short position indefinitely, as long as they maintain enough margin to cover unrealized losses. Unlike traditional futures, which settle on a fixed quarterly or monthly date, perps stay open until the trader closes them or the position is liquidated.

The modern crypto perpetual swap was introduced by BitMEX in May 2016 with its XBTUSD contract. To keep the perp price tethered to spot without an expiry, BitMEX designed a periodic funding payment exchanged directly between longs and shorts. The mechanism worked, and within a few years Binance, Bybit, dYdX, GMX, and Hyperliquid had launched their own perpetuals — which now account for the majority of crypto trading volume, often 3–5x the volume of spot markets according to CoinGlass and CoinGecko derivatives data.

The key difference from spot trading is that you never take delivery of the underlying coin. Buying 1 BTC on the spot market gives you a real bitcoin you can withdraw. Buying a 1 BTC perpetual gives you a synthetic exposure: a contract whose P&L tracks bitcoin's price, settled in the margin asset (usually USDT, USDC, or in some "coin-margined" contracts, BTC itself). This separation is what enables leverage of up to 100x or more, since the exchange only needs you to post a fraction of the notional as collateral.

That leverage cuts both ways. A 10x long on BTC liquidates after roughly a 9–10% adverse move; a 50x long can be wiped out by a 1.8–2% wick. During the May 19 2021 sell-off, over $8 billion in crypto perps were liquidated in 24 hours; the FTX collapse in November 2022 and the August 2024 yen-carry unwind produced similar cascades. Perps are useful tools for hedging and speculation, but they are not a substitute for spot ownership and carry funding costs that compound over time.

Once a position is open, two ongoing forces determine its lifecycle: the mark price (used for unrealized P&L and liquidation calculations, derived from an index of major spot exchanges) and the funding rate (the periodic payment that keeps the perp anchored to spot). Exchanges deliberately use the index-based mark price rather than the perp's own last-traded price to prevent manipulators from triggering liquidations with thin-book wicks on a single venue.

Position sizing is expressed in either contracts or coin-equivalent units. On Binance USDⓈ-M futures, 1 contract = 0.001 BTC; on Bybit linear perps, sizing is in coin units directly. Fees are typically 0.02% maker / 0.05% taker on Binance, with discounts for VIP tiers and BNB payment, and similar schedules on Bybit. These fees apply to notional size, not margin — so a $10,000 position at 10x leverage opened with $1,000 margin still pays fees on the full $10,000.

Funding is calculated from two components: a premium index (how far the perp's mid-price has drifted from the spot index over the funding interval) and a fixed interest rate component (typically 0.01% per 8 hours, representing the cost-of-carry between the quote and base currencies). The formula on Binance and Bybit is roughly: Funding Rate = Premium Index + clamp(Interest Rate − Premium Index, −0.05%, 0.05%). The result is then capped — Binance caps most pairs at ±0.75% per interval, but the effective cap is usually much tighter.

Worked example: you hold a $10,000 long BTC perp position. The 8-hour funding rate prints at +0.03% (a fairly bullish reading). You pay 0.03% × $10,000 = $3 to the shorts at the funding timestamp. Annualized, a sustained +0.03% per 8 hours works out to roughly 32.9% APR — expensive carry. During the 2021 alt-season peak, funding on pairs like DOGE and SHIB regularly exceeded +0.3% per 8 hours (over 300% APR) for days at a time, and several Solana DeFi perps printed +1% single-interval funding. Sustained negative funding is rarer but occurred on BTC during the March 2020 COVID crash and again briefly after the FTX collapse in November 2022.