What is perpetual trading?
Perpetual futures, or perps, is a form of trading that lets you speculate on the future price of an asset without owning it.
With perpetual futures, you can:
- Go long if you think the price will go up
- Go short if you think the price will go down
If your bet is correct, you profit; if not, you take a loss. Because perps involve leverage (explained further below), both profits and losses are greatly amplified.
- MetaMask allows you to trade perpetuals easily within the mobile app. Check out our tutorial for support.
- Not available to users in the following regions: USA, UK, Ontario (Canada), Belgium and countries on the USA sanctions list.
Futures in crypto
Futures contracts are widely used to speculate on price movements and balance against risk.
- In traditional finance, derivatives (a superset of futures) often track commodities (like corn and oil), currencies, indexes, or even individual stocks.
- A futures contract is a common type of derivative. It’s an agreement to buy or sell an asset at a set price on a set date in the future. Traders use this to lock in prices or bet on where they think prices will go.
In the world of crypto, futures include perpetual contracts (perps) that let you speculate on the future price of tokens like ETH, BTC, and memecoins without needing to own them directly. Perps also allows you to employ a concept called leverage to gain exposure to a much larger chunk of money than your collateral.
Unlike traditional futures, perps don’t have an expiration date: you can hold a position indefinitely, as long as you meet certain requirements as outlined below.
Perpetual trading can be risky—don’t trade with money you aren’t prepared to lose. Always do your own financial research before deciding if a specific trading technique is right for you.
Dive into the key features involved in perp trading below:
No expiration date and token ownership
Unlike traditional futures, perpetual futures like the name implies have no expiration date. You can speculate on the price movement of a token indefinitely as long as you maintain enough collateral (also known as margin) to cover the funding cost, and the price doesn’t reach your liquidation price.
When you trade perps, you aren’t buying or selling the underlying token (like ETH or BTC), instead, you’re entering into a contract with other traders speculating on the token’s price.
Funding rate
The funding rate is a periodic payment exchanged between traders. Its purpose is to keep the perp contract price close to the underlying asset’s spot price (the current market price). Funding payments are added or subtracted from your margin every hour while your position is open.
- If the perp price is above the spot price, the funding rate is positive: longs pay shorts.
- If the perp price is below the spot price, the funding rate is negative: shorts pay longs.
Example: If you’re long on ETH and the funding rate is positive, you would pay a periodic fee to traders holding short positions.
Key details:
- On platforms like Hyperliquid, the base funding fee is +0.00125% per hour (longs pay shorts). This can adjust depending on how far the perp price drifts from spot.
- Over time, funding rates accumulate. The longer you keep a position open, the more funding costs eat into your margin.
- When funding rates are high, it incentivizes some traders to take the opposite position, which helps bring perp prices back in line with spot.
Leverage
One of the most defining features of perps is leverage. Leverage is a multiplier that allows you to control a larger position than your deposited collateral (also known as margin). Leverage amplifies both your gains and losses, making it a powerful yet risky strategy.
Example: With $1,000 margin at 10x leverage, you control a $10,000 position. If the price moves up by 5% and you exit (close your position) then, you would gain 50% on your initial capital, or in this scenario, $500 in profit.
However, the same applies in reverse. If the price drops by 5%, you lose 50% of your initial capital – again, $500. If the price drops by 10%, you would be liquidated and your entire margin is gone. meaning your entire $1,000 margin gets wiped out.
The higher the leverage, the smaller the price move needed to wipe out your margin. Be cautious: start small.
Check out our leverage and liquidation guide for a deeper understanding and play around with the simple profit & loss calculator for insight into your liquidation threshold.
Liquidation
Liquidation happens when your losses reach a point where your margin (collateral) isn’t enough to sustain your position. At this point, the perps exchange automatically closes your position to prevent your balance from going negative. You lose your entire margin.
Your liquidation price depends on your leverage and entry price. The higher the leverage, the smaller the liquidation distance. A 40x leveraged position for example will be liquidated at a mere 2.5% price swing.
Funding rates can also push you closer to liquidation if your margin can’t sustain your open position.
Once liquidated, your margin cannot be recovered. That’s why managing your margin, leverage, and risk appetite is important.
Learn more in our leverage and liquidation guide.
Spot vs. perps
If you normally just buy, hold, and sell crypto (like most people) — that’s called spot trading (short for ‘on the spot'). The table below highlights the differences between spot trading and perpetuals trading with crypto:
| Feature | Spot trading | Perp trading |
|---|---|---|
| Ownership | Own underlying token (e.g. ETH, BTC) | No token ownership—you trade contracts tied to price |
| Requirements to maintain | None, you can hold your tokens indefinitely with no margin or funding rate requirements | Margin and funding rate required to keep position open |
| Leverage | Not available—you trade what you own without multiplier | Available—you can gain exposure to larger positions with smaller up-front capital |
| Max loss | The amount you invested in the token | The amount you invested in the position—your margin |
| Liquidation risk | None, except price of token dropping by 100% | High due to leverage: the higher leverage you use, the more risk you take |
Ready to trade? Check out our step-by-step guide or jump to the app to get started.