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

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.

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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)

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.

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