A perpetual future, or perp, is a derivative contract that creates price exposure to an underlying without a scheduled expiry date. The position remains open until it is closed, offset, or liquidated under the product's rules.
In plain terms — It is a contract on the price, not a coin in a wallet. It has no fixed expiry; funding and the risk engine help manage its distance from spot and the margin account.
Contract and underlying
A perpetual defines the contract unit, underlying or index, margin and settlement currency, tick, minimum size, and method for calculating profit and loss. It may be linear, with P&L expressed in the quote currency, or inverse or quanto under product-specific formulas.
Buying the contract does not mean buying the underlying asset. The customer holds a contractual position within the system defined by the contract and platform. This is why spot, expiring futures, and perpetuals are not interchangeable.
Index price, last price, and mark price
The index price attempts to represent a reference price through disclosed sources and rules. The last price is the price of the most recent trade in the perpetual market. The mark price is a calculated value that may be used for unrealised P&L, margin requirements, or liquidation.
The three measures can diverge. An anomalous last trade should not automatically be treated as the economic value of the whole account; at the same time, the mark is not a price at which a fill is guaranteed. Index composition, fallbacks, update frequency, and the mark formula are properties of the individual product.
How funding links the perpetual to its reference
Funding is a periodic payment or credit specified by the contract. In many models, when the perpetual trades at a premium to the reference, longs pay shorts; at a discount, the direction may reverse. The exact rule may include premium and interest components, clamps, and caps.
The interval, formula, realised rate, and recipient of the flow differ across venues. There is no universal “eight-hour” rule, and the sign can change before the next payment. Funding covers the mechanism; Funding cost shows how it enters the result.
Margin, leverage, and liquidation
The position uses initial and maintenance margin. Changes in the mark, funding, fees, and other positions can reduce available equity. When the account no longer meets its requirements, the engine may reduce or close the position through a liquidation procedure.
Leverage increases exposure relative to capital, but the number displayed in the interface does not tell the whole story. Distance from maintenance margin, executable liquidity, the collateral currency, and the possibility that collateral falls with the position all matter.
Isolated margin, cross margin, insurance funds, and ADL
With isolated margin, the platform attempts to limit the collateral assigned to one position; with cross margin, a larger balance or multiple positions may share resources. Implementations vary, and cross margin can transmit a loss between strategies that appeared separate.
Insurance funds, partial liquidation, auto-deleveraging (ADL), and negative balance protection are possible mechanisms, not universal guarantees. The order of intervention, execution price, charges, and stress conditions in which the system may behave differently must be understood.
Spot, expiring futures, and perpetuals
Spot trading exchanges the asset or a right to its delivery. A conventional future has an expiry and converges or settles under defined rules; continuing the exposure after expiry requires a new contract or roll. A perpetual removes that expiry but introduces funding and continuous dependence on the margin engine.
No structure is inherently “cheaper”. A comparison uses the same notional and horizon, then adds spread, fees, funding or basis, slippage, collateral, and transfer costs.
A funding example without false certainty
A long position with a notional value of 10,000 units goes through three
realised funding settlements of 0.01% each. If the contract says longs pay,
the total flow is 3 units before price movement, fees, and slippage:
10,000 × 0.0001 × 3.
This is only an accounting identity. The next rate can change, notional can vary, and some venues use different rules. A current rate should not be projected as a certain cost for the entire holding period.
Checks before opening a position
- Identify the contractual entity, underlying, unit, margin, and settlement.
- Read the index sources and fallbacks, and the mark price's formula and use.
- Check funding: interval, formula, cap, timestamp, and realised history.
- Calculate maintenance margin with fees, funding, and collateral risk.
- Understand liquidation, the insurance fund, ADL, and negative balance protection.
- Test exit, liquidity, and order behaviour under stress.
Legal classification and professional level
The name “perpetual future” does not determine legal classification on its own. ESMA requires consideration of rights, obligations, settlement, and economic substance. Within the scope of European CFD intervention measures, neither funding nor an insurance fund is sufficient on its own to exclude a product.
A professional control keeps versioned records of the contract specifications, index sources, margin curves, rulebook changes, and point-in-time data. It simulates gaps, index–venue dislocations, congestion, correlated collateral, liquidation cascades, and platform unavailability.
Sources
- ESMA — Guidelines on the qualification of crypto-assets as financial instruments — paragraphs 47–55: crypto derivatives and assessment of substance.
- ESMA — Statement on derivatives within CFD product-intervention measures — labels, funding, expiry, and insurance funds do not determine the scope on their own.
- BIS–FSI — Cryptoasset service providers as financial intermediaries — perpetuals, leverage, margin, liquidation, insurance funds, and auto-deleveraging.
- CFTC — BTCPERP product terms — one contract's index, premium, funding, and margin terms; not a universal model.
- IOSCO — Policy Recommendations for Crypto and Digital Asset Markets — disclosure, integrity, conflicts, custody, and crypto-platform risk.
Links
Digital assets and crypto markets · Futures · Spot market · Funding · Margin · Liquidation · Exchange risk
Gold path — Execution module. Index: Gold path.