A guide to crypto perpetual futures for beginners

Key takeaways about perps for beginners

• Perpetual futures ("perps") are derivative contracts that track an asset's price and allow leveraged long or short positions with no expiration date.

• Unlike traditional futures, perps use a recurring funding rate rather than a settlement date to stay anchored to the underlying spot price.

• Leverage amplifies both gains and losses proportionally—the higher the multiple, the smaller the adverse price move needed to trigger liquidation.

• The top 10 perpetual exchanges processed a combined $92.9 trillion in trading volume during 2025, up 64.6% from 2024 (CoinGecko 2025 Annual Report).

• Perps carry a high risk of total margin loss and are not suitable for all participants.

Perpetual futures—commonly called perps—have grown into one of the most actively traded instruments in crypto. A perp is a derivative contract that tracks the price of an underlying asset (such as ETH or BTC) and allows traders to take leveraged positions in either direction: long (expecting the price to rise) or short (expecting the price to fall). Unlike a traditional futures contract, a perp has no expiration date—the position stays open as long as sufficient margin is maintained.

This guide covers what perpetual futures are, why they exist, 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.

Why perpetual futures exist

Crypto markets operate 24/7 with no closing bell. Traditional futures, designed for commodities and equity markets that close overnight and on weekends, impose expiration dates that force traders to roll positions forward—closing one contract and opening the next—at regular intervals. That rolling process creates friction: settlement costs, basis risk (the gap between the futures price and the spot price near expiry), 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. For a detailed breakdown of how funding rates are calculated and how they affect positions over time, see funding frequency and mechanics.

The result is an instrument that behaves like a futures contract but trades more like a spot position—continuous, no rollovers, and no expiry-driven price distortions.

How a perpetual futures trade works

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. This is the fundamental bet—which way the asset's price will move.

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 also amplified by the same factor. For a worked example with position-sizing tables and margin calculations, see Leverage and margin in perpetual futures.

Risk management: Stop-loss and take-profit orders define the boundaries of the trade—the price levels at which the position closes automatically, either to limit losses or to lock in gains. Without active risk management, leveraged positions can deteriorate faster than anticipated, particularly during periods of high volatility.

Once open, the position is subject to funding rate payments at regular intervals. If the perp contract is trading above the spot price (indicating more demand from longs), long holders pay a fee to short holders. If the contract is below spot (indicating short-heavy positioning), short holders pay longs. This mechanism continuously nudges the perp price back toward the underlying asset's market price.

How perps differ from traditional futures and spot trading

Three ways to gain exposure to a crypto asset's price—spot, traditional futures, and perpetual futures—each serve different purposes:

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.

Traditional futures are contracts to buy or sell an asset at a specific price on a specific date. They are common in commodities and equity markets but less prevalent in crypto. The expiration date forces settlement—the position closes whether the trader is ready or not.

Perpetual futures combine elements of both. 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. For a deeper look at perps and spot positions using Bitcoin as a case study, read a comparison of perpetual futures vs spot Bitcoin.

Understanding the risks

Perpetual futures carry risks that are distinct from spot trading and should be understood before interacting with them.

Liquidation: If a position's losses consume the deposited margin beyond the maintenance threshold, the position is forcibly closed—a process called liquidation. The higher the leverage, the smaller the adverse price move required to trigger it. At 50x leverage, a 2% move against the position eliminates the entire margin. Liquidation is calculated against the mark price, an aggregated reference price designed to resist manipulation. For a full walkthrough of how liquidation engines operate, see our guide to liquidation mechanics.

Funding costs: Holding a perp position over hours, days, or weeks means accumulating funding payments in one direction. During periods of strong directional sentiment (such as a bull market where most traders are long), funding rates can become a meaningful cost. These costs are easy to underestimate over longer holding periods.

Volatility and cascading liquidations: Crypto markets are volatile. During sharp moves, liquidation of overleveraged positions can accelerate the price move further—a cascading effect where one liquidation triggers the next. This can cause prices to overshoot fair value temporarily, catching even well-margined positions.

Margin mode selection: 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 for all positions). Each mode carries different risk profiles. For a comparison of how each mode affects liquidation thresholds and account exposure, see cross vs isolated margin.

Counterparty and platform risk: The exchange or protocol that processes the trade carries its own risks—smart contract vulnerabilities in DeFi protocols, or custodial risk on centralized exchanges.

Get started with perpetual futures

Perpetual futures on 150+ tokens, US equities, commodities, and currencies are accessible through MetaMask via Hyperliquid—with self-custodial control and no additional accounts required.

Note: This article was generated using AI, and edited by MetaMask's content team.