What is a perpetual contract?
A perpetual contract, also commonly called a perpetual swap, is a derivative without a scheduled expiry date. In crypto markets it allows long or short exposure to assets such as BTC or ETH without spot transactions to obtain the same price exposure. Price exposure means how asset-price changes affect a position’s gains and losses.
Perpetuals usually trade on margin and use funding to encourage a connection with spot reference prices. No regular expiry rollover is required, but continued positions still depend on collateral and product rules.
What do you hold when trading a perpetual?
Buying BTC spot acquires BTC itself; opening a BTC perpetual long creates a position whose price results follow contract rules. A contract position is not an equivalent spot balance. Longs usually gain from rising underlying prices; shorts have the opposite exposure.
For a linear contract denominated and settled in USDT, using underlying quantity and excluding fees:
- Long price result = position quantity × (closing price − entry price).
- Short price result = position quantity × (entry price − closing price).
Suppose a long represents 0.1 BTC, entered at 60,000 USDT and closed at 61,000 USDT. Its price gain is 0.1 × (61,000 − 60,000) = 100 USDT. Quantity and prices are teaching assumptions. USDT is a stablecoin’s ticker symbol and the denomination and settlement unit here, not an assertion of no value risk.
The gain comes from the contract’s price difference, not a prior purchase and resale of 0.1 BTC spot. A short also need not involve borrowing BTC and selling it first. Ordinary voluntary closing still requires an executed order; clicking “close” does not complete an exit.
Confirm quantity units first. Products can display underlying quantity, contract counts or face value. “One contract” cannot automatically mean “one BTC.”
Why do perpetuals need funding rates?
Perpetuals have their own market. In order-book markets, eligible buy and sell quotes are matched into a contract trade price, which can deviate from spot.
Expiry futures settle or deliver at a specified end date, creating a final settlement constraint. Perpetuals have no such endpoint, so funding usually changes long and short holding costs to encourage price convergence.
The funding rate calculates funding payments. Commonly, positive final rates mean longs pay shorts; negative rates mean shorts pay longs. If a persistent contract premium above spot corresponds to a positive rate, longs incur costs and shorts receive payments.
Cost differences can affect trading behavior, but do not directly set execution prices or guarantee the gap disappears. Rates may use premiums over time, interest parameters and limits. One instant’s price gap cannot alone determine final payment direction.
Funding and trading fees are separate flows. Even without another trade, an eligible position can incur or receive funding at settlement.
How does margin determine whether a position continues?
Margin secures obligations; it is not the price of buying corresponding spot assets. Funds below position notional value can support a position, creating leverage. Notional is position size calculated at the applicable price and specifications.
The previous 0.1 BTC at 60,000 USDT has 6,000 USDT entry notional. With 600 USDT of eligible collateral equity at entry, the simple ratio is 10×. Price results still use 0.1 BTC, not 600 USDT. See leverage for the ratios.
During holding, the platform compares eligible collateral equity with maintenance requirements. Price losses, funding payments or collateral depreciation can reduce capacity. Insufficient collateral can lead to cancellation, reduction or liquidation, without waiting for the entire initial contribution to be lost.
Isolated and cross margin determine included funds and positions: isolated generally allocates collateral separately, while cross shares eligible assets within a defined scope. An interface leverage multiple alone cannot assess position condition.
How do last, index and mark prices differ?
They describe execution, spot reference and risk valuation respectively and are not interchangeable.
| Price | Meaning | Common use |
|---|---|---|
| Last traded price | Price of the contract’s most recent actual trade | Showing trading activity and price movements |
| Index price | Reference from specified spot sources and calculations | Underlying reference and funding calculations |
| Mark price | Rule-based contract risk valuation | Unrealized results or collateral sufficiency checks |
Using a mark price reduces the influence of brief abnormal trades in one contract market on risk assessment. Formula and displayed results depend on the product. It is not a promised execution price: risk valuation and closing-order execution are separate.
Why do different perpetuals require different formulas?
“Perpetual” specifies no scheduled expiry, not standardized denomination, collateral or settlement.
The earlier linear contract multiplies quantity by price difference for results in the quote asset. Another common design is an inverse contract, for example dollar face value settled in BTC, involving reciprocal prices. The same numeric quantity can represent very different sizes.
Collateral and settlement assets need not match. Some unified accounts recognize other eligible collateral while settling contract results in a specified asset. Eligible collateral and conversion rules may differ by account mode; USDT in a contract’s name alone does not prove it is the account’s only collateral asset.
Read underlying and quantity units, face value, settlement asset, collateral, funding and liquidation rules together. They determine how a position number should be understood.
What does a perpetual position express in crypto business?
It can express directional exposure or form part of combinations with spot or other contracts to study or manage price sensitivity in different directions. Opposite directions do not necessarily fully cancel: quantity bases, spot-contract gaps, funding and account liquidation conditions can differ. This explains tool uses, not a trading-combination recommendation.
No expiry reduces regular rollover needs but removes neither ongoing collateral nor funding obligations. Termination or delisting can also end positions under the rules.
Distinguish how the contract calculates price results, how funding changes holding costs, and how long risk rules permit the position to continue.
Related terms
Explore funding rate, margin, leverage and index price, or return to the crypto glossary.
References
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