Disclaimer: This content is for general educational purposes only, is not financial advice or a solicitation, and is not intended for UK audiences. Perpetual futures involve a high risk of loss and may not be suitable for everyone.
Perpetual futures, also known as perps, let you speculate on the future price of an asset without owning it directly. Instead of buying the token itself, you trade contracts that mirror the underlying price. Unlike traditional futures contracts, perps contracts never expire, so you can hold them as long as you meet margin requirements.
One of crypto's most popular crypto derivatives, perps play a substantial role in token price discovery and liquidity. With self-custodial crypto wallets like MetaMask, traders can access these markets while keeping full control of their assets and collateral at the same time.
This guide explains the most important perpetual futures concepts, like funding rates, leverage, and liquidation, in clear, accessible terms.
Perpetual futures explained
1. The basics of perps
Perpetual futures allow you to go long or short on an asset’s price without an expiry date. As long as you can maintain the required margin and pay the funding rate, your position stays open.
For example, if you think the price of ETH will rise, you can open a long position. If it does rise, you profit. If the price falls, your account equity drops. When trading perps, you profit from accurately predicting price movements rather than from owning the token itself.
Takeaway: Perpetual contracts let you speculate on prices indefinitely, without actually holding the asset.
2. How funding rates keep prices balanced
Because perps have no expiry date to force the contract price to match the spot price (aka the current market price of the asset), they use a mechanism called the funding rate.
Funding is a periodic payment exchanged between traders:
Positive funding: If the perp price is higher than the spot price, longs pay shorts. This incentivizes selling, pushing the price down.
Negative funding: If the perp price is lower than the spot price, shorts pay longs. This incentivizes buying, pushing the price up.
Takeaway: Funding rates are regular payments that help keep perp prices aligned with the underlying market.
3. Leverage and margin
Leverage boosts your buying power by allowing you to control a bigger position than your balance.
For example: with 10x leverage, $1,000 in collateral opens a $10,000 trade. The catch? Gains and losses are magnified equally.
Two margin types you’ll see often:
Initial margin: What you need to open a trade (e.g., 10% for 10x leverage).
Maintenance margin: The minimum to keep the trade open; drop below this, and you risk liquidation.
Takeaway: Leverage increases opportunity and risks, managing margin is crucial.
4. Perpetual futures vs. spot trading
Dimension | Perpetual futures | Spot trading |
Ownership | Cash-settled (no actual asset) | You own the token |
Expiry | None (indefinite) | N/A |
Leverage | High (10x - 50x+) | None |
Costs | Trading fees + funding (amount of collateral you put into a given trade) | Trading fees only |
Direction | Long or short | Long only |
Takeaway: Perps give traders tools to hedge and profit from both rising and falling prices, unlike spot markets.
5. Key terms in perpetual markets
Mark price: A reference index used to calculate profits and losses, and prevent unfair liquidations.
Liquidation: Automatic closure when your margin falls below maintenance levels.
PnL (profit and loss): Realized PnL is locked when you close a trade; Unrealized PnL fluctuates while open.
Maker vs. taker: Makers add liquidity with limit orders; takers remove it by executing instantly.
Maintenance leverage: The max leverage a position can sustain before liquidation becomes likely.
Stop loss: An automatic order to close your trade if the price moves against you past a level you set. MetaMask will automatically close your position when you are liquidated, so you cannot lose more than your margin.
Liquidation: When losses eat too much of your margin collateral, the platform automatically closes your position to prevent further losses.
Take profit: An automatic order to lock in gains when price reaches your set target.
Takeaway: Knowing these terms helps you navigate trade mechanics and manage positions smartly.
8. Real world use cases
Traders use perps for more than speculation. They are valuable for hedging (e.g., shorting against spot holdings) and arbitrage, where traders profit from differences between perp and spot prices or funding rates.
Conclusion
Perpetual futures combine flexibility, liquidity, and leverage in one dynamic instrument. They open powerful trading possibilities, but demand active management and awareness of risks.
By using self-custodial crypto wallets like MetaMask, traders can access these decentralized derivatives while maintaining full control and ownership of their assets.
For more about perps trading, check out our beginners guide to perpetual futures. Ready to start trading? Explore MetaMask Perps now.
