Most futures contracts have an end date. On a fixed day, they expire and are either settled in cash or by delivering the underlying asset. Perpetual futures are different: they never expire. Invented for cryptocurrency markets, they have become one of the most heavily traded products in the world, and they explain why crypto prices can swing so sharply at weekends when traditional markets are closed.
What perpetual futures are
A perpetual future, often shortened to “perp”, is a derivative contract that lets traders bet on the price of an asset, usually a cryptocurrency such as bitcoin, without owning it and without an expiry date. Traders can hold a position for as long as they like, provided they keep enough margin in their account.
The product was introduced by the exchange BitMEX in 2016 and has since spread to most major crypto exchanges. Perpetuals now account for a large share of total crypto trading volume, often more than spot trading of the coins themselves.
How the funding rate works
Without an expiry date, there is nothing to force the contract’s price to converge with the underlying asset’s price. Perpetuals solve this with a mechanism called the funding rate.
At regular intervals, often every eight hours, traders on one side of the market pay traders on the other side. If the perpetual is trading above the spot price, which usually means more traders are betting on a rise, those holding long positions pay those holding short positions. If the perpetual trades below spot, shorts pay longs.
These payments encourage traders to push the contract back towards the spot price. When the funding rate is strongly positive, holding a long position becomes expensive, which can discourage new buyers. When it turns negative, holding a short position becomes costly.
For traders, the funding rate is also a useful gauge of sentiment. Persistently high positive funding suggests the market is crowded with leveraged bullish bets, which can leave it vulnerable to a sharp drop.
Leverage and liquidation
Perpetuals are usually traded with leverage, meaning traders put up only a fraction of the position’s value as margin. Some exchanges offer very high leverage. That magnifies gains but also losses.
If the price moves against a leveraged position far enough, the exchange automatically closes it to prevent the account going negative. This is called liquidation. When many traders are positioned the same way, a price move can trigger a wave of liquidations, each forced sale pushing the price further and triggering more. Our guide to what a crypto liquidation cascade is explains how these chain reactions unfold.
Why they trade at weekends
Crypto markets run around the clock, seven days a week, and so do perpetual futures. That makes them one of the few liquid markets open when stock exchanges, bond markets and most futures markets are shut.
As a result, perpetuals can become a place where traders react to weekend news, from geopolitical developments to policy announcements. Liquidity is often thinner at weekends, so prices can move more sharply. Some exchanges have also launched perpetual-style contracts on traditional assets such as stock indices and commodities, giving traders a way to express views outside normal market hours.
Weekend moves in crypto are sometimes treated as an early indicator of how risk appetite might look when traditional markets reopen on Monday, although the link is far from reliable. We look at that Monday handover in how equity futures behave on quiet Monday opens.
The risks
The main risks are leverage, liquidation and funding costs. Holding a position for weeks can rack up significant funding payments, eating into returns even if the price moves the right way. Exchange risk matters too: many perpetuals trade on offshore platforms with less regulatory oversight, and the collapse of exchanges in the past has wiped out customer funds.
In the UK, the Financial Conduct Authority restricts the sale of crypto derivatives to retail customers, so most UK retail traders cannot legally access these products through regulated firms.
The bottom line
Perpetual futures are contracts without an end date, kept in line with spot prices by regular funding payments. They are powerful, popular and risky, and they play an outsized role in how crypto markets behave, especially at weekends. To test how well you understand derivatives and leverage, take the free Samuel & Co trader assessment.
