Crypto · Pro · 4 min

Perpetual futures and funding rates

You can explain how perpetual futures work without an expiry, how funding payments keep them near the spot price, and why high leverage leads to liquidations.

A future without end

On many crypto platforms, the busiest market is not bitcoin itself. It is a contract that tracks bitcoin's price, never expires, and can be traded with very high leverage: the perpetual future.

Perpetuals are behind many of crypto's sudden crashes and spikes. Understanding how they work explains a lot about crypto price behavior, even for people who never trade them.

Funding keeps it near spot

A perpetual future, or perp, is a futures contract with no expiry date. Normal futures converge with the spot price at expiry. A perp has no expiry, so it needs another mechanism.

That mechanism is the funding rate. The BIS describes it as a payment designed to replace expiry: holders of long and short positions pay each other, based on the gap between the perp's price and the spot price. On many platforms, funding is settled every eight hours.

When the perp trades above spot, funding is positive: longs pay shorts. That makes holding longs more expensive and pulls the price down towards spot.
When the perp trades below spot, funding is negative: shorts pay longs.

Funding looks small per period, but it adds up. At 0.01% every eight hours, a long position pays about 11% of its size per year.

Perps are usually traded with leverage, often far beyond what EU rules allow for retail CFDs. Platforms close positions automatically when losses eat into the margin. This liquidation happens at the next available price. When many traders use high leverage on the same side, a sharp move can trigger a cascade: forced sales push the price further, which triggers more liquidations. Comments filed with the CFTC have pointed to such cascades during market stress.

In the US, the CFTC moved in 2026 to allow perpetual-style contracts on regulated exchanges. Much perp trading still happens on offshore platforms with little oversight.

−9%, liquidated

A fictional trader opens a long bitcoin perp worth 10,000 with 1,000 of margin: 10x leverage.

A 10% fall would wipe out the whole margin. The platform liquidates earlier, when the margin falls to its maintenance level.
Overnight, bitcoin falls 9%. The position is closed automatically, and most of the 1,000 is gone.
Hundreds of other leveraged longs are liquidated at the same moment. Their forced sales push bitcoin down another 3% within minutes.

By morning, the price recovers part of the fall. The trader is no longer in the position to benefit.

Common mistakes

Using the maximum leverage offered. It shrinks the distance to liquidation to a normal daily move.
Ignoring funding costs. They compound over weeks and months.
Assuming a stop protects you. In a cascade, fills can be far from your price.
Trading on unregulated platforms. Rules, protections and recourse may be missing.

The takeaway

Perpetual futures never expire. Funding payments between longs and shorts keep them near spot. With high leverage, small moves trigger liquidations.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the case in which holders of long positions pay funding.

Tap the chart.

Positive funding makes holding longs more expensive, which pulls the perpetual's price back towards spot.
2Funding is 0.01% every eight hours. Roughly what does a long position pay over a year?

0.01% three times a day for 365 days is about 11%. On a leveraged position, that is a large share of the margin.
3You open a long perpetual at 10x leverage. Roughly how large a fall can wipe out your margin?

At 10x, a 10% fall equals the whole margin. Platforms liquidate earlier, at the maintenance margin.
4Why can liquidations accelerate a price fall?

Cascading liquidations during stress have been documented in crypto markets, especially with high leverage.

of 4 correct.