Perpetual contracts, often called “perps” or perpetual futures, are crypto derivative instruments that track the price of an underlying asset without an expiry date. Like traditional futures, they let traders take long or short positions without owning the cryptocurrency itself, typically by posting collateral and using leverage.
How perpetual contracts work
Because a perpetual contract never expires, exchanges use a mechanism to keep its price anchored to the spot market. The most common tool is the funding rate, a periodic payment exchanged between traders who are long and short. When perp prices trade above spot, longs may pay shorts, which discourages excessive long demand and nudges the perp price back toward spot. When perps trade below spot, shorts may pay longs. This design replaces the “expiry and settlement” process used by dated futures.
Perps are usually margined, meaning positions are backed by collateral such as stablecoins or other tokens. If the market moves against a trader and their margin becomes insufficient, the position can be liquidated to prevent losses from exceeding the posted collateral. This is why leverage can amplify both gains and losses.
Where they’re used and practical examples
Perpetual contracts are popular on centralized exchanges and on decentralized derivatives platforms like dYdX and Hyperliquid. A trader might use a BTC perpetual to speculate on Bitcoin’s price direction without holding BTC. Another common use is hedging, for example, a miner or long term holder may short a perpetual contract to reduce exposure to a potential downside move while keeping their spot holdings.
Perpetual contracts matter in the crypto ecosystem because they provide liquidity, price discovery, and risk management tools, but they also introduce leverage and liquidation risk that can amplify volatility during stressed markets.