What Are Perpetual Futures? A Beginner Guide to Perps
If you have spent any time around crypto trading, you have probably heard the word perps. Short for perpetual futures (also called perpetual contracts or perpetual swaps), perps are the single most traded instrument in cryptocurrency markets — regularly generating more daily volume than spot trading.
This guide explains what perpetual futures are, how they work, and why they matter.
What Is a Perpetual Future?
A perpetual future is a derivative contract that tracks the price of an underlying asset — like Bitcoin, Ethereum, or Solana — without requiring you to own the asset itself.
Unlike traditional futures contracts that expire on a set date, perpetual futures have no expiry. You can hold a position for seconds or for months — it is entirely up to you.
The "perpetual" part is what makes them unique: the contract rolls forward indefinitely, anchored to the spot price through a mechanism called the funding rate.
How Do Perps Work?
Trading a perp involves three core concepts: direction, leverage, and margin.
1. Choose a Direction: Long or Short
When you open a perp position, you pick a side:
- Go long if you think the price will rise — you profit when the price goes up
- Go short if you think the price will fall — you profit when the price goes down
New to these terms? Read our full explainer on what "long" and "short" mean.
2. Apply Leverage
Leverage lets you control a larger position with a smaller amount of capital. For example, 10x leverage means a $100 deposit controls a $1,000 position.
This amplifies both gains and losses proportionally (see our complete guide to how leverage works for a deeper dive):
| Leverage | Price Moves 5% in Your Favor | Price Moves 5% Against You |
|---|---|---|
| 1x | +5% profit | -5% loss |
| 5x | +25% profit | -25% loss |
| 10x | +50% profit | -50% loss |
3. Post Margin (Collateral)
Your margin is the collateral you deposit to open a position. If the market moves against you and your margin drops below a minimum threshold, your position gets liquidated — the exchange closes it automatically to prevent losses exceeding your collateral.
Higher leverage requires less margin but leaves less room for the price to move against you before liquidation.
The Funding Rate: How Perps Stay Anchored to Spot Price
Because perps never expire, they need a mechanism to keep the contract price close to the real (spot) price. This is the funding rate — a small periodic payment exchanged between long and short traders:
- Perp price above spot → longs pay shorts (discourages further longs, pushes price down)
- Perp price below spot → shorts pay longs (discourages further shorts, pushes price up)
Funding is typically settled every 8 hours. It is an ongoing cost (or income) that you should factor into any position you hold.
Why Perps Dominate Crypto Trading
Perpetual futures solve real problems that traditional futures create:
- No expiry management — traditional futures require "rolling" positions to new contracts before expiry, which costs time and money
- Continuous exposure — hold a position as long as your thesis is valid
- Deep liquidity — instead of splitting traders across multiple expiry dates, perps concentrate everyone into one market
- Capital efficiency — leverage means you do not need to commit the full notional value of a trade
- Two-way trading — profit from both rising and falling prices
This is why perps account for the majority of crypto derivatives volume globally.
Perpetual Futures vs. Spot Trading
| Feature | Spot Trading | Perpetual Futures |
|---|---|---|
| Ownership | You own the asset | You hold a contract |
| Leverage | Typically 1x | Up to 20x or more |
| Short selling | Not directly possible | Built-in |
| Expiry | N/A | None (perpetual) |
| Funding costs | None | Funding rate applies |
Spot trading is simpler and involves no liquidation risk. Perps offer more flexibility but require understanding leverage and risk management.
Perpetual Futures vs. Traditional Futures
Traditional futures (common in commodities and stock indices) expire on a specific date. At expiry, you either settle in cash or deliver the underlying asset.
Perpetual futures remove this entirely. The funding rate replaces the natural convergence that expiry provides, creating a contract that behaves like a future but never settles.
Are Perps Right for You?
Perpetual futures are powerful but not risk-free. Before trading:
- Understand leverage — it amplifies losses just as much as gains
- Learn about liquidation — know your liquidation price before you enter a trade
- Start small — use low leverage (2-3x) while you learn
- Manage risk — never risk more than you can afford to lose
If the concept still feels abstract, our ELI5 guide to perps breaks it down using everyday analogies.
Trading Perps on Ventuals
Ventuals is a decentralized perpetuals exchange where trades settle on-chain and your funds stay in your own wallet.
Key advantages:
- Non-custodial — you hold your own keys at all times
- Transparent — all positions, liquidations, and funding rates are verifiable on-chain
- Permissionless — no KYC or account creation required
- Deep liquidity — competitive spreads across major trading pairs
Wondering why the interface shows "Long" and "Short" instead of "Buy" and "Sell"? That is standard for perps — here is why.
Frequently Asked Questions
What does "perps" mean in crypto?
Perps is short for perpetual futures (or perpetual contracts). They are derivative contracts that let you trade the price of a crypto asset with leverage, without owning the asset and without any expiry date.
How do perpetual futures make money?
You profit when the price moves in the direction of your position. If you go long and the price rises, you profit. If you go short and the price falls, you profit. Leverage multiplies the effect. You can also earn funding payments when the funding rate favors your side.
Can you lose more than your deposit?
On most exchanges, including Ventuals, your maximum loss is limited to your margin (the collateral you deposited for that position). This is enforced through the liquidation mechanism.
What is the difference between perps and options?
Perps give you linear exposure to price movement — your profit or loss scales directly with the price change (multiplied by leverage). Options give you non-linear exposure with a fixed maximum loss (the premium paid) and potentially unlimited upside. Perps are simpler to understand but carry liquidation risk.
Ready to start trading? Open your first perp position on Ventuals →