What Are Perpetual Futures? A Beginner's Guide
Perpetual futures explained simply: how perpetual contracts work, what leverage and margin mean, how funding rates keep prices anchored, and how liquidation happens.
A perpetual future (or "perp") is a contract that lets you trade the price of an asset like Bitcoin or Ethereum without owning it. You can profit when the price rises by going long, or when it falls by going short. Unlike traditional futures, a perpetual contract has no expiry date — you can hold the position as long as you keep enough margin.
Long, short, and why it matters
- Long: you expect the price to go up. If it does, you profit; if it falls, you lose.
- Short: you expect the price to go down. If it does, you profit; if it rises, you lose.
Being able to short is one of the biggest reasons traders use perpetuals: you can aim to profit in both rising and falling markets.
Leverage and margin
Leverage lets you open a position larger than your account balance. Margin is the money you put up as collateral. For example, with 10x leverage, $100 of margin controls a $1,000 position.
Leverage cuts both ways. It multiplies gains and losses by the same factor. On BitPerp you can choose leverage up to 100x, but higher leverage means a smaller price move can wipe out your margin. New traders are usually better served by low, conservative leverage.
Rule of thumb: think in terms of the position's total size (notional), not just your margin. A $100 margin at 20x is a $2,000 position — and it moves like one.
Funding rates: what keeps the price honest
Because a perpetual never expires, something has to keep its price tied to the real (spot) market. That job belongs to the funding rate. At regular intervals, traders on one side of the market pay traders on the other side a small amount:
- When the perpetual trades above spot, longs typically pay shorts.
- When it trades below spot, shorts typically pay longs.
This gentle push keeps the perpetual price anchored to spot over time. Funding is exchanged between traders, and you only pay or receive it if you hold a position through a funding timestamp.
Liquidation: the risk to respect
If the market moves against you far enough that your margin can no longer cover the loss, your position is liquidated — closed automatically to prevent your balance from going negative. The price at which this happens is your liquidation price.
Two levers control how close that price is:
- Leverage: higher leverage moves the liquidation price closer to your entry.
- Margin: adding margin pushes the liquidation price further away, giving the trade more room to breathe.
Good risk management — modest leverage, a plan for where you're wrong, and never risking more than you can afford to lose — is what separates traders who last from those who don't.
Putting it together
A perpetual future is a flexible, two-directional way to trade price with leverage. The mechanics that make it work — leverage, margin, funding and liquidation — are exactly the things you need to respect to trade it well. Start small, understand your liquidation price before you enter, and treat leverage as a tool, not a shortcut.