Essential perpetual futures concepts for every trader

Perpetual futures—commonly called perps—are one of the most actively traded instruments in crypto. They allow traders to speculate on the price of an asset without owning it, using leverage to control positions larger than their deposited collateral. Unlike traditional futures contracts, which settle on a fixed date, perps have no expiry. A position stays open as long as the trader maintains sufficient margin and covers the funding rate, a recurring payment that keeps the contract price anchored to the underlying spot market.

Perps account for the majority of crypto derivatives volume globally. They play a central role in price discovery, liquidity, and hedging across major tokens, and increasingly across equities, commodities, and currencies on decentralized platforms.

This article explains how the core mechanics of perpetual futures work—funding rates, leverage, margin, and liquidation, and provides a glossary of essential trading terms. Each section links to deeper coverage elsewhere in the MetaMask perps library for traders who want to go further. For a narrative walkthrough of how to approach a first perps trade, including a worked profit-and-loss example and a full breakdown of risks, see a guide to crypto perpetual futures for beginners.

Disclaimer: This guide is for educational purposes only. It is not financial advice, not a solicitation, and not for UK audiences. Perpetual futures are risky and not suitable for all users.

Perpetual futures vs. spot trading vs. traditional futures

Spot trading means buying and holding the actual asset. Traditional futures add leverage and short exposure but force settlement or rollover at expiry—creating friction, timing pressure, and cost. Perpetual futures remove the expiry constraint entirely: the funding rate replaces the settlement date as the mechanism that keeps contract prices aligned with spot. The result is an instrument that behaves like a futures contract, but trades more like a spot position: continuous, no rollovers, no expiry-driven price distortions.

Leverage ranges reflect general market availability and are not specific to any single platform. For a detailed side-by-side using Bitcoin as a case study, see perpetual futures vs spot Bitcoin.

Funding rate mechanics

Because perps have no expiry date, they rely on a recurring payment called the funding rate to keep contract prices anchored to the spot market. How it works: Funding is exchanged directly between long and short holders at fixed intervals—typically every eight hours. The rate is calculated as a percentage of position size and reflects the premium or discount of the perp price relative to spot.

• Positive funding rate:

  The perp price is above spot. Long holders pay short holders. This creates a cost for longs and incentivizes selling, which pushes the contract price down toward spot.

• Negative funding rate:

  The perp price is below spot. Short holders pay long holders. This creates a cost for shorts and incentivizes buying, which pushes the contract price up toward spot.

Funding is not a fee paid to the exchange or platform—it flows peer-to-peer between traders on opposite sides of the market. Only traders holding an open position at the exact funding timestamp pay or receive; closing before the timestamp means zero funding cost for that interval.For a deeper look at how funding frequency, rate formulas, and carry strategies work across platforms, see perpetual futures funding frequency and strategies.

Leverage and margin

Leverage determines how much market exposure a given amount of collateral (margin) controls. Higher leverage means less margin required per unit of exposure, but also a smaller price move to trigger liquidation.

• Initial margin is the collateral required to open a position. At 10x leverage, initial margin is 10% of position size.

• Maintenance margin is the minimum collateral required to keep a position open. Falling below this threshold triggers

  liquidation.

• Cross margin pools the entire account balance as shared collateral across all open positions.

• Isolated margin

  confines collateral to a single position, capping the maximum loss on that trade.

Margin requirements, leverage limits, and liquidation mechanics vary significantly by platform, asset, and position size—many platforms use tiered systems that reduce effective leverage as position size grows. For worked examples, tiered margin tables, and platform-specific parameters, see leverage and margin in perpetual futures trading. For a full comparison of how cross and isolated margin affect liquidation thresholds and risk management, see cross vs isolated margin in perpetual futures. MetaMask Perps supports up to 50x leverage on select assets via Hyperliquid using isolated margin only, the margin assigned to each position is the maximum at risk.

Glossary of perpetual futures terms

Auto-deleveraging (ADL): A backstop mechanism activated during extreme market conditions when the liquidation engine cannot fully close a position at the bankruptcy price. ADL automatically reduces the positions of profitable traders on the opposite side to cover the shortfall. See perpetual futures liquidation mechanics for how ADL fits into the liquidation cascade. Liquidation: The forced closure of a position when account equity falls below the maintenance margin threshold. Liquidation is calculated against the mark price, not the last traded price. In isolated margin mode, losses are generally limited to the posted margin—though ADL may affect outcomes in extreme scenarios. For a full walkthrough including worked calculations, see perpetual futures liquidation mechanics. Maker vs. taker: Makers add liquidity to the order book by placing limit orders that rest until filled. Takers remove liquidity by placing orders that execute immediately against resting orders. Most platforms charge lower fees to makers to incentivize order book depth. Mark price: A reference index price derived from a weighted average of spot prices across multiple exchanges, rather than from the last traded price on the perps platform. Mark price is used to calculate unrealized PnL and to trigger liquidations, preventing temporary price wicks or manipulation on a single venue from causing unfair forced closures. Maintenance margin ratio: The minimum margin level, expressed as a percentage of position size, required to keep a position open. When account equity falls below this ratio, liquidation is triggered. Maintenance margin is always lower than initial margin. For worked examples of how maintenance margin connects to liquidation price, see leverage and margin in perpetual futures trading. Open interest: The total number of outstanding perps contracts that have not been closed or settled. Rising open interest alongside rising price suggests new money entering long positions. Rising open interest alongside falling price suggests new shorts. Open interest is a measure of market participation, not volume. Order book: The list of all resting buy and sell orders for a given contract, organized by price level. Order book depth—how many contracts sit at each price—affects slippage and the cost of entering or exiting large positions. PnL (profit and loss): Unrealized PnL fluctuates while a position is open and is calculated against the mark price. Realized PnL is locked in when the position is partially or fully closed. A position can show positive unrealized PnL and still incur a net loss after accounting for funding payments and trading fees. Slippage: The difference between the expected execution price and the actual fill price. Slippage increases during periods of high volatility or low liquidity, and affects market orders and stop-loss/take-profit triggers. Limit orders avoid slippage but may not fill if the market moves away from the specified price. Stop loss: An order type that automatically closes a position if the price moves against it past a trader-defined level, limiting potential losses. Stop-loss orders are typically executed as market orders once triggered, which means they are subject to slippage; execution at the exact specified price is not guaranteed during fast-moving markets. Take-profit: An order type that automatically closes a position when the price reaches a trader-defined target, locking in gains. Like stop-loss orders, take-profit orders may experience slippage between the trigger price and the actual fill.

Real-world use cases

Hedging: A trader holding ETH spot can open a short ETH perp position to offset downside exposure during a period of expected volatility. If ETH falls, losses on the spot holding are partially offset by gains on the short perp. The cost of this hedge is the funding rate paid (or received) while the position is open. Funding rate arbitrage: When funding rates are persistently positive, a trader can hold a delta-neutral position—long the asset in spot, short the same asset via perp—and collect funding payments from longs without directional exposure. This strategy carries its own risks, including basis risk (the spot and perp prices diverging unexpectedly) and liquidation risk on the perp leg if the margin buffer is insufficient. For more on how funding frequency shapes these strategies, see perpetual futures funding frequency and strategies.

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