What are perpetual futures?

Perpetual futures explained: how they work, funding rates, leverage, and why perps have expanded from crypto to equities and pre-IPO markets.

By Emily Hsia·Updated April 17, 2026

Perpetual futures — usually just called perps — are one of the most traded financial products in the world, and over the last decade they have quietly become the default way many investors express a directional view on crypto and, increasingly, on pre-IPO companies.

But for most people the name does more harm than good. A "perpetual future" sounds like a traditional futures contract that somehow runs forever, which is not quite right. Perps are a distinct product with their own mechanics, their own risks, and their own reasons for existing.

If you're completely new to the topic, our plain-English ELI5 explainer of perps is a gentler place to start — it covers the core idea with an everyday analogy and skips the mechanics. This guide is the deeper version.

This guide explains what a perpetual future actually is, how it differs from a traditional futures contract, how the funding rate keeps its price anchored to spot, how leverage and liquidations work, and why perps — originally built for crypto — now underpin equities and pre-IPO markets where ordinary investors would otherwise have no way in.

What is a perpetual future?

A perpetual future is a derivative contract that tracks the price of an underlying asset — Bitcoin, an equity index, a pre-IPO company's implied valuation — without an expiration date and without requiring ownership of the underlying.

Two features make perps different from almost every other financial instrument:

No expiration. A traditional futures contract expires on a fixed date and settles against the spot price. A perp has no settlement date. A position can, in principle, be held forever.
No delivery. When a perp is closed, no shares, coins, or physical goods change hands. The position is settled in cash, in whatever collateral currency the venue uses.

Instead of converging to spot at expiry, a perp stays tethered to spot through a recurring cash flow called the funding rate, which we'll cover in detail below.

Because there is no underlying to take delivery of, a perp is a pure price-exposure instrument. You are not buying the asset — you are taking a position on where its price is going. That distinction is central to understanding what perps are for, and why they have spread from crypto to equities to pre-IPO markets. For a broader treatment of the ownership-vs-exposure distinction, see Owning Stock vs. Price Exposure for Private Companies.

Perpetual futures vs. traditional futures

Traditional futures have existed for centuries. Wheat farmers, oil producers, and institutional investors have long used them to lock in a price for delivery at a specific date in the future. A perpetual future keeps some of that structural DNA — it's still a derivative that tracks an underlying, it still uses margin, and it still allows both long and short positions — but the two products differ in several important ways.

Feature	Traditional future	Perpetual future
Expiration	Fixed date (e.g. quarterly)	None — the contract runs indefinitely
Settlement	Physical or cash settled at expiry	Ongoing cash settlement via funding rate
Price convergence	Converges to spot at expiry	Stays near spot via recurring funding payments
Rollover	Must be rolled to a new contract at expiry	No rollover — the same contract continues
Typical users	Hedgers, institutional investors, commodity producers	Retail and professional traders seeking price exposure
Venue	Regulated exchanges (CME, ICE)	Crypto exchanges, derivatives platforms
Leverage	Modest (typically 5–20x)	Often much higher (up to 100x+ on some venues)
Underlying	Commodities, indices, equities	Crypto, equities, pre-IPO valuations, indices

The single most important difference is the missing expiry. In a traditional future, the contract's price must converge to spot on a known date, because that's when the contract settles. A perp has no such date, so a different mechanism is needed to keep its price from drifting away from the underlying. That mechanism is the funding rate.

A short history of perpetual futures

Perpetual futures were first proposed by Robert Shiller in 1992. Shiller — later a Nobel laureate in economics — suggested them as a way to create price discovery for assets that don't have a liquid spot market, like real estate or an individual's future earnings. The academic idea sat unused for two decades.

The product that actually reached traders came from crypto. In 2016, the derivatives exchange BitMEX launched the first live perpetual future, on Bitcoin. BitMEX's key innovation was the funding rate — a simple recurring payment between longs and shorts that pulled the contract price back toward spot without needing an expiry date. That design turned out to be extremely well suited to crypto, where spot markets were fragmented across exchanges and traders wanted continuous, high-leverage exposure.

Over the next several years perps became the dominant product in crypto derivatives, with Binance, OKX, Bybit, and eventually on-chain venues like dYdX and Hyperliquid building entire businesses around them. By the early 2020s, perp volumes routinely exceeded spot volumes for major crypto assets — often by several multiples.

More recently, the structure has moved beyond crypto. Perps now exist on equities, commodity indices, FX pairs, and pre-IPO company valuations — a category where traditional derivatives were never available to ordinary investors. Ventuals is one example of a platform offering perpetual futures on private companies like SpaceX, OpenAI, and Anthropic, giving retail investors price exposure to companies whose shares they could not otherwise access. For more on how this fits into the broader pre-IPO access question, see how to invest in private companies.

How perpetual futures work

A perpetual future has a handful of moving parts. You don't need to memorize the math to trade one, but understanding the mechanics makes the risks much easier to see.

Mark price and index price

Every perp has two related prices:

The index price is the reference price of the underlying asset, usually calculated as a weighted average across several spot venues. It's what the perp is "supposed to" track.
The mark price is the price the venue uses internally for unrealized P&L and liquidations. It's typically a smoothed version of the index price, designed to prevent thin-liquidity blips from triggering cascade liquidations.

The perp itself trades at its own market price, set by supply and demand between longs and shorts. When lots of traders want to be long, the perp trades at a premium to the index. When shorts dominate, it trades at a discount. That imbalance is what the funding rate is designed to correct.

The funding rate

The funding rate is a recurring payment — usually every 1 or 8 hours, depending on the venue — that flows directly between longs and shorts based on whether the perp is trading above or below the index.

When the perp trades above the index (longs are paying up), the funding rate is positive, and longs pay shorts.
When the perp trades below the index (shorts are paying up), the funding rate is negative, and shorts pay longs.

The effect is a continuous incentive to close out whichever side is crowded. If everyone is long and the perp is trading 1% above spot, longs are bleeding funding to shorts every few hours, and the pressure to close longs pulls the perp price back down toward the index. This mechanism replaces the role that expiration-based convergence plays in a traditional futures contract.

Funding is not a fee paid to the exchange — it's a payment between traders. In a perfectly balanced book, funding is close to zero. In a one-sided book, it can be substantial. On crypto perps during extreme rallies, annualized funding has at times exceeded 100%. For a deeper look at the formula, cadence differences across venues, and how funding compounds against leveraged margin, see what is the funding rate.

Leverage and margin

Perps are usually traded on margin, which means a trader posts a fraction of the notional position size as collateral and the venue extends the rest as leverage. Common leverage ratios range from 2x to 20x on equities and pre-IPO perps, and up to 100x+ on some crypto venues. For a deeper walkthrough of how leverage works inside a perp trade — including the math on when an ordinary move wipes out the margin — see what is leverage?.

Two margin concepts matter:

Initial margin is the collateral required to open the position. At 10x leverage, opening a $10,000 notional position requires $1,000 of initial margin.
Maintenance margin is the minimum collateral the venue requires to keep the position open. It's lower than initial margin — for example, 0.5% of notional.

If unrealized losses push the account's equity below the maintenance margin threshold, the venue will liquidate the position — close it out automatically to prevent the account from going negative. For a fuller walkthrough of how initial and maintenance margin interact, see what is margin.

Liquidations

A liquidation is what happens when a trader's margin can no longer support their position. The venue seizes the remaining collateral and closes the position at the prevailing market price. In most cases, the trader loses their entire margin.

Liquidations are the defining risk of trading perps. Because leverage amplifies both gains and losses, a relatively small move in the underlying can wipe out an over-leveraged account. At 10x leverage, a 10% adverse move eliminates the entire margin. At 50x leverage, a 2% move does the same.

During volatile periods, liquidations can cascade: one account getting liquidated forces a market sell, which pushes the price further, which liquidates the next account, and so on. This is why sharp, short-lived price spikes — "liquidation wicks" — are so common on heavily-traded perp markets.

What can perpetual futures be used for?

Perps are not a single-purpose tool. Different traders use them for very different reasons.

Directional speculation. The simplest use case: a trader thinks an asset will rise or fall and opens a long or short perp to express that view, often with leverage.
Hedging. An investor who owns the underlying can short a perp to offset downside risk without selling the underlying itself. For example, someone holding employee equity in a private company can, in principle, short a perp on that company's implied valuation to reduce downside exposure while waiting for liquidity.
Pre-IPO price exposure. In markets where direct ownership isn't realistic — including most pre-IPO companies for most investors — a perp offers exposure to the company's implied valuation without the accreditation, transfer, or liquidity hurdles of owning the shares. See perpetual futures for private markets for the structural-fit argument, and how to buy SpaceX stock before the IPO and how to buy OpenAI stock before the IPO for concrete walkthroughs.
Spread and basis trades. Professional traders take positions in perps against spot or against other derivatives to capture funding, basis, or volatility.
Capital-efficient exposure. Because perps only require margin rather than the full notional, they let traders express a view with much less capital tied up than buying the underlying outright.

The common thread is that a perp separates price exposure from ownership. That is a meaningful shift in what investing can look like, especially in markets like pre-IPO equities where most people could not buy the underlying even if they wanted to. For a deeper look at how ownership and price exposure differ, see 3 ways to invest in unicorn startups as a retail investor.

A worked example: trading a perpetual future

To make the mechanics concrete, imagine a retail trader opens a position on a perpetual future tracking a private company's implied valuation.

The setup:

Initial margin: $1,000
Leverage: 5x
Notional position size: $5,000 long
Entry mark price: $100 per contract
Maintenance margin: 1% of notional, or $50

Now consider three scenarios.

Scenario 1 — the mark price rises to $110. The position is up 10% at the contract level, which is 50% on the posted margin because of the 5x leverage. The trader closes and realizes a $500 gain on $1,000 of margin, before funding payments and fees.

Scenario 2 — the mark price falls to $90. A 10% drop at the contract level is a 50% loss on margin. The trader's equity has fallen to $500, still above the $50 maintenance threshold. The trader can choose to close and realize the loss, add margin, or hold.

Scenario 3 — the mark price falls to $80. A 20% drop wipes out the entire $1,000 of margin. Somewhere before $80, the account falls below the maintenance margin and gets liquidated. The trader loses the full $1,000.

This example illustrates two points that apply to every perp:

Leverage is symmetric — it amplifies gains and losses in equal measure.
Liquidation isn't an edge-case — at 5x leverage, a ~20% adverse move is enough. At 20x leverage, a ~5% move does it.

Funding payments would flow in or out during the life of the position as well, depending on which side of the book is paying up. On a position held for days or weeks, funding can meaningfully move the breakeven.

The main risks of perpetual futures

Perps are powerful, but they carry specific risks that are easy to underestimate.

Leverage risk. The headline risk. A high-leverage position can be wiped out by an ordinary market move. The more leverage, the smaller the adverse move needed to liquidate.
Liquidation mechanics. Liquidations are automatic and usually final. A trader who is liquidated doesn't get the position back even if the price rebounds.
Funding costs. On a persistently one-sided market, funding can quietly erode a position's P&L. A trader who is long through a strong rally may still pay significant funding the whole way up.
Counterparty risk. A perp is a contract with the venue, not a security. If the platform is insolvent, manipulated, or paused, the position's economics can be affected. This has happened repeatedly in crypto.
Market risk. The underlying itself can move unpredictably. Perps don't reduce exposure to the underlying — they concentrate it.
Liquidity risk. On thinner markets — including many new perp markets — slippage on entry or exit can be large, and stop-losses may fill far from the intended price.

None of these risks are unique to perps (any leveraged derivative shares most of them), but the combination of no expiry, ongoing funding, and often very high available leverage makes them particularly acute for inexperienced traders.

Who can trade perpetual futures?

Eligibility depends on the underlying and the venue.

Crypto perps. Widely available outside the U.S. through exchanges like Binance, Bybit, OKX, and dYdX. In the U.S., regulated crypto derivatives are more limited, and most of the largest crypto perp venues are not available to U.S. retail traders.
Equity and index perps. Traditional equity futures trade on regulated venues like the CME and are accessible to U.S. retail traders through standard futures brokers, often with suitability requirements.
Pre-IPO perps. A newer category. Platforms like Ventuals offer perpetual futures on private-company implied valuations without requiring accreditation or direct share ownership. This is one of the few paths to pre-IPO exposure that is realistically open to retail investors.

Regulatory treatment varies by jurisdiction and is still evolving, especially for novel underlyings like pre-IPO valuations. Anyone considering trading perps should read the specific venue's terms, check local eligibility, and size positions conservatively.

FAQs

Are perpetual futures the same as options?

No. Options give the holder the right, but not the obligation, to buy or sell at a strike price. Perps are linear: a 1% move in the underlying produces roughly a 1% move in the perp (before leverage), in either direction. Options have non-linear payoffs — perps don't.

Do perpetual futures ever expire?

No. That's the defining feature. A perp has no expiration date and can in principle be held indefinitely, as long as the position stays above the maintenance margin threshold and the venue continues to list the contract.

What happens if funding goes on forever?

Funding is paid between longs and shorts, so it's a net-zero transfer inside the market. There's no counterparty that runs out. As long as the market remains two-sided, funding continues to keep the perp price close to the index.

Can I lose more than I deposit on a perp?

On most venues, no — the liquidation mechanism is designed to close the position before the account goes negative. But in fast markets or during gaps, the actual closing price can be worse than the liquidation price, and some venues have historically socialized those losses across remaining traders. Read the venue's terms carefully.

Do I own anything when I trade a perp on a private company?

No. A perp is a derivative, not a share. Trading a perp on a pre-IPO company's implied valuation gives you price exposure but no ownership, no shareholder rights, and no claim on the company's assets. That's an important distinction — for a full comparison, see Owning Stock vs. Price Exposure for Private Companies.

Why did perps start in crypto?

Crypto had three things going for it that made perps a natural fit: fragmented 24/7 spot markets across many venues (so a derivative could improve price discovery), a large pool of retail traders who wanted leveraged exposure, and no legacy futures infrastructure to compete with. Perps solved a real problem in crypto, and the structure that worked there has since been extended to other markets.

Are perps legal in the U.S.?

It depends on the underlying. Regulated futures on commodities and equities are legal and widely available. Crypto perp access for U.S. retail is limited — most of the largest venues don't serve U.S. customers. Pre-IPO valuation perps are a newer category, and regulatory treatment is still developing.

The bottom line

A perpetual future is a derivative that tracks an asset's price with no expiration and no ownership of the underlying. Instead of converging at expiry, it stays anchored to spot through a recurring funding payment between longs and shorts. Leverage and liquidations are the defining risks — amplified gains and losses, with the real possibility of losing all posted margin on an ordinary move in the underlying.

Perps started in crypto but the structure now underpins equities and pre-IPO markets, where they're often the only realistic way for ordinary investors to get exposure to companies whose shares they couldn't otherwise buy. That's the real story of perpetual futures in 2026: a product built to solve one specific problem in crypto has become one of the more useful tools for anyone trying to participate in private-market price discovery without direct share ownership.

This article is for general informational purposes only and is not financial advice. It is not a recommendation or offer to buy, sell, or invest in any security, asset, or product. Always do your own research and consult qualified professional advisors before making investment decisions.