Perpetual futures are a way to trade on the direction of an asset's price without owning it.Unlike traditional futures, perps use a recurring funding rate rather than a settlement date to stay anchored to the underlying asset's spot price.Leverage amplifies both gains and losses proportionally: the higher the leverage, the smaller the price move needed to trigger liquidation.Perps carry a high risk of total margin loss and are not suitable for all participants.Perpetual futures, commonly known as perps, are a way to trade on whether the price of an asset will go up or down. Go long if the expectation is that the price will rise, or go short if the expectation is that the price will fall. Unlike traditional financial futures contracts, perps have no expiration date. The position stays open as long as sufficient margin is maintained.
This guide covers what perpetual futures are, how they work, how they differ from other ways to trade crypto, and what risks they carry. For definitions of essential terms like margin, leverage, funding rate, and liquidation, see key perpetual futures concepts.
Disclaimer: This guide is for educational purposes only. It is not financial advice, not a solicitation, and not for UK audiences. Perpetual futures carry a high risk of loss, including the total loss of deposited margin, and are not suitable for all users.
Crypto markets operate 24/7 with no closing bell. Traditional futures are designed for markets that close overnight and on weekends, and impose expiration dates that force traders to roll positions forward—closing one contract and opening the next—at regular intervals. That process creates friction: costs, timing pressure, and forced decision points on a calendar schedule.Perpetual futures remove that friction. A perp contract never expires, so a position can remain open indefinitely. The trade-off is the funding rate—a small recurring payment exchanged between long and short holders, typically every eight hours, that keeps the contract price anchored to the spot market.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.A perp trade involves three core decisions:Direction: A trader goes long to profit from a price increase, or short to profit from a price decrease.Size and leverage: Margin (collateral) is deposited to open the position. Leverage determines how much exposure that margin controls. At 5x leverage, $1,000 in margin controls $5,000 in notional exposure—but losses are amplified by the same factor.Risk management: Stop loss and take profit orders define the price levels at which the position closes automatically, either to limit losses or to lock in gains. Without these, leveraged positions can deteriorate faster than anticipated, particularly during periods of high volatility. Some wallets, like MetaMask, have additional guardrails on perps trading, so that you cannot lose more than you put in.Once open, the position is subject to funding rate payments at regular intervals. If the perp contract is trading above spot (more demand from longs), long holders pay short holders. If below spot (more demand from shorts), short holders pay longs. This continuously nudges the perp price back toward the underlying market price. For a full breakdown of how funding rates work over time, see perpetual futures funding frequency and strategies.
Spot trading means buying and owning the actual asset. A spot ETH purchase results in ETH held in a wallet. There is no leverage, no liquidation risk, and no funding cost. The position lasts as long as the holder wants. Spot is typically used for long-term accumulation and participation in onchain activities like staking or DeFi.
Perpetual futures combine elements of futures and spot. Like futures, they offer leverage and the ability to short. Like spot, they have no forced settlement date. The funding rate replaces the expiration mechanism.Key consideration | Spot | Perpetual futures |
Own the asset | Yes | No |
Expiration | None | None |
Leverage | No | Yes |
Short positions | No | Yes |
Forced settlement | No | No |
Ongoing cost | None | Funding rate |
For a deeper look using Bitcoin as a case study, see perpetual futures vs spot Bitcoin.
Here is a hypothetical scenario showing how a long position works in practice.A trader deposits $100 as margin and opens a long position on ETH at 5x leverage. The position controls $500 of notional exposure at an entry price of $2,000.ETH rises 10% to $2,200: The position gains $50. Margin grows from $100 to $150—a 50% return on deposited collateral.ETH falls 10% to $1,800: The position loses $50. Margin falls from $100 to $50.ETH falls 20% to $1,600: The position loses $100—the entire margin. At or before this point, the position is liquidated.The same 10% move that produces a 10% change in the underlying asset produces a 50% change in the margin at 5x leverage. This is the core dynamic of leveraged trading.Liquidation. If a position's losses consume the deposited margin beyond the maintenance threshold, the position is forcibly closed. The higher the leverage, the smaller the adverse price move required to trigger it. Liquidation is calculated against the mark price—an aggregated reference price designed to resist manipulation. For a full walkthrough of how liquidation works, see perpetual futures liquidation mechanics.
Leverage | Approximate adverse move to liquidation |
2x | ~50% |
5x | ~20% |
10x | ~10% |
25x | ~4% |
50x | ~2% |
Exact thresholds depend on the platform's maintenance margin rate and margin mode.
Funding costs: Holding a perp position over hours, days, or weeks means accumulating funding payments. During periods of strong directional sentiment, funding rates can become a meaningful cost that is easy to underestimate over longer holds.
Volatility: Crypto markets are volatile. During sharp moves, liquidation of over-leveraged positions can accelerate the price move further, a cascading effect where one liquidation triggers the next. This can catch even well-margined positions.Margin mode: Most platforms offer isolated margin (only the collateral assigned to a specific trade is at risk) and cross margin (the entire account balance serves as collateral). Each carries a different risk profile. For a comparison of how each mode affects liquidation thresholds, explore cross vs isolated margin.
Counterparty and platform risk: The exchange or protocol processing the trade carries its own risks—smart contract vulnerabilities in DeFi protocols, or custodial risk on centralized exchanges.Perpetual futures on 150+ tokens, US equities, commodities, and currencies are available on MetaMask via Hyperliquid, with complete self-custody, no KYC, and no additional accounts required.
Note: This article was prompted and edited by MetaMask's Gabriela Helfet, and generated using AI.
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