Everything You Need to Know About Perpetual Futures in Crypto
Perpetual futures, or 'perps,' have become one of the most traded financial instruments in crypto since launching in 2015.
Perpetual futures, commonly called perps, are a type of derivative contract that allows traders to speculate on the price of an asset without an expiration date. Unlike traditional futures, perps never settle, enabling traders to hold positions indefinitely.
The first perpetual futures contract was launched on the BitMEX exchange in 2015. Since then, perps have become one of the most heavily traded financial instruments in the cryptocurrency market, often surpassing spot trading volumes on major exchanges.
How Perps Work
- Perps use a funding rate mechanism to keep the contract price aligned with the underlying spot price.
- Traders can go long or short, and positions are settled in the base currency (e.g., Bitcoin).
- Leverage is commonly available, amplifying both gains and losses.
Funding rates are periodic payments between long and short traders. When the perp trades above spot, longs pay shorts; when below, shorts pay longs. This incentivizes price convergence.
Perps are widely used for hedging, speculation, and arbitrage. They offer high liquidity and are available on most major exchanges, including Binance, Bybit, and dYdX.