What Is a Perpetual Future? How Funding and Liquidation Work
Short answer: a perpetual future is a derivative contract that tracks an asset with no expiry date. The longer answer — why it matters and where people get it wrong — is below.
The definition
A perpetual future is a derivative contract that tracks an asset with no expiry date.
Definitions in crypto are often circular or full of jargon. If you understand only that sentence, you already know more than most people using the term.
Why it matters to you
In practice, it is where most crypto leverage lives, which is why funding and liquidations matter.
The concepts that affect your decisions are worth understanding properly; the rest is trivia.
The part people get wrong
One important nuance: the funding mechanism is what keeps it tethered to spot.
Most costly mistakes in crypto come from a half-understood concept rather than a completely unknown one.
No expiry, so funding does the work
A traditional future has a delivery date, and that date is what pulls its price back toward spot. A perpetual future never expires, so BitMEX, which introduced the contract in 2016, needed another mechanism: funding. Every funding interval, typically eight hours and hourly on some newer venues, one side pays the other. When the perp trades above spot, longs pay shorts; when it trades below, shorts pay longs. The payment nudges the price back to the index.
For a trader, funding is a cost or an income that has nothing to do with being right about direction. Holding a long through a period of strongly positive funding can cost more than the move earns. It is also a sentiment gauge: persistently high positive funding means the crowd is long and paying to stay that way, which is exactly when a squeeze hurts most.
Mark price, leverage and where liquidation sits
Perps are traded on margin. With 10× leverage, $1,000 of margin controls a $10,000 position, and a move of roughly 9 to 10% against you wipes the margin out. The exchange does not wait for zero: it liquidates when your margin falls to the maintenance level, closing the position and usually charging a fee, and on most venues part of what remains goes to an insurance fund.
Liquidation is checked against the mark price, not the last trade. Mark price blends the spot index with a moving average of the perp's own premium so that a single large order on one exchange cannot liquidate everyone. It is the number to watch when you are near your level, and it is why a position can be liquidated at a price that never printed on the chart you were looking at.
Open interest, cascades and why the derivatives panel exists
Open interest is the total size of positions currently open. When it rises with price, new longs are entering with leverage; when price then falls, their liquidations become forced market sells, which push price down, which liquidates the next tier. That chain is a liquidation cascade, and it is how a 5% move becomes a 15% wick in twenty minutes.
This is the reason CoinPriceAlert's derivatives panel shows funding, open interest and the long-short split next to the price. A spot holder does not use leverage, but the leverage in the system moves the price they own, and knowing that positioning is stretched is the difference between reading a wick as a crash and reading it as a flush.
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Frequently asked questions
What is a perpetual future in simple terms?
A perpetual future is a derivative contract that tracks an asset with no expiry date. In practice, it is where most crypto leverage lives, which is why funding and liquidations matter.
How often is funding paid?
Typically every eight hours on the large venues, and hourly on some newer exchanges. The rate is shown as a percentage per interval; multiply by three for a daily cost on an eight-hour schedule, then by 365 for the annualised figure many terminals display.
What is the liquidation price at 10× leverage?
Roughly a 9 to 10% move against you for an isolated position, because liquidation triggers when margin falls to the maintenance requirement rather than to zero. Exchanges show the exact figure when you open the trade; cross margin and fees change it.
Do perpetuals track the spot price?
Closely, because funding pushes them back toward the spot index whenever they drift. The gap, called the basis or premium, is small in calm markets and widens sharply during squeezes, which is itself useful information.
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Related terms
- Leverage — borrowed exposure that multiplies both gains and losses
- Stop-Loss — an order that closes a position once price passes a level you chose
- Volatility — the degree to which a price moves around, in either direction
Sources
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