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# What Are Crypto Perpetual Contracts

In crypto trading, **perpetual contracts** (often called *perps*) are a type of derivative with **no expiration date**. This means traders can hold **long or short positions indefinitely** on an underlying asset (e.g., Bitcoin, Ethereum) without needing to settle at a fixed time.**Core Mechanisms**

* **Funding Rate** 

To keep perpetual prices aligned with spot prices, platforms apply periodic funding payments.

* If perp price > spot → longs pay shorts

* If perp price < spot → shorts pay longs

* **Leverage**&#x20;

Perpetuals allow leverage (e.g., 10×, 20×, or higher), enabling traders to control larger positions with less capital.

* **Risk & Liquidation**

Due to leverage, market volatility can reduce margin below required levels, triggering **forced liquidation**. Additionally, unfavorable funding rates can increase holding costs over time.

***

**Example**

Suppose you believe Bitcoin will rise and open a **10× leveraged long position**:

* Margin: $1,000
* Position size: $10,000

If BTC rises 5% → profit = **5% × 10 = 50% ($500)**&#x20;

If BTC falls 5% → loss = **$500**

If funding rate is positive (longs pay shorts), you must also **pay periodic funding fees**.

This mechanism ensures perpetual prices stay close to spot markets.

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Perpetual contracts have become a dominant trading instrument in crypto due to:

* Flexible holding (no expiry)
* Ability to go **long or short**
* Leverage for amplified returns
* Well-suited for **24/7, high-volatility markets**