Perpetual futures

A classic futures contract expires on a set date and settles at the market price. A perpetual futures contract has no expiry. A position can stay open as long as the trader keeps enough margin.

A perp is a derivative: the trader does not own the asset, only a contract on its price. Profit and loss follow the price move multiplied by the position size. Going short is as simple as going long, which is one reason perps are popular.

With no expiry, something else must keep the contract price close to the spot price. That mechanism is funding – a periodic payment between traders, not a fee to the exchange.

When the perp trades above spot, the funding rate is positive and longs pay shorts. When it trades below spot, the rate is negative and shorts pay longs. Many exchanges settle funding every eight hours; some, such as Hyperliquid, settle every hour.

• Funding is charged on the full position size, not on the margin. With leverage it takes a larger share of the trader's own money.
• A high positive rate shows crowded longs, a deep negative rate crowded shorts.
• Live rates across exchanges: funding rates and Hyperliquid funding rates. The total of open contracts is tracked on the open interest page.

Leverage lets a trader open a position larger than the money put up for it. That money is the margin. With 10x leverage, 100 dollars of margin controls a 1,000-dollar position.

Leverage does not change the market. It changes how much of the margin a given price move takes. At 10x, a 1% move against the position costs 10% of the margin, and a move of about 10% takes all of it.

• Initial margin – the amount needed to open the position: size divided by leverage.
• Maintenance margin – the minimum that must remain to keep it open, set by the exchange.
• Higher leverage means a closer liquidation price, not a larger profit by itself. The same result comes from a larger position at lower leverage.

The liquidation price is the level at which the remaining margin falls to the maintenance requirement. The exchange then closes the position by force, and the margin assigned to it is lost.

For an isolated long the estimate is: entry price × (1 − 1 / leverage + maintenance margin rate). For a short: entry price × (1 + 1 / leverage − maintenance margin rate). A long from 100 at 10x with a 0.5% maintenance rate is liquidated near 90.5. The same long at 5x is liquidated near 80.5.

• Exchanges use the mark price – a price based on the index and funding – not the last trade, to trigger liquidation.
• Fees and funding paid while the position is open move the liquidation price closer.
• A stop order placed before the liquidation price limits the loss to an amount the trader chose.

• Isolated margin – each position has its own margin. If it is liquidated, only that amount is lost. The liquidation price is closer.
• Cross margin – all positions share the whole account balance as margin. The liquidation price is further away, but a liquidation can take the entire balance.
• In cross mode, the profit of one position supports another. In isolated mode, positions do not affect each other.
• Isolated suits a single trade with a fixed, known risk. Cross suits hedged positions and traders who manage risk across the whole account with stops.

Most leveraged accounts lose money. The lower the leverage and the smaller the position against the account, the more room a trade has.

• Trading fees – maker and taker fees are charged on the full position size on entry and exit.
• Funding – paid or received at every interval while the position is open.
• Liquidation – a forced close, often with an extra liquidation fee.
• Fast moves – a sharp wick can reach a liquidation price and reverse minutes later.
• Counterparty risk – the margin is held by the exchange or protocol.

• Choosing leverage first and position size second. Size should come from the stop distance and the amount at risk.
• Trading without a stop and treating the liquidation price as the exit.
• Using cross margin with the whole balance and no stops.
• Ignoring funding on a position held for days.
• Adding margin to a losing position instead of closing it.
• Skipping the risk-reward ratio check because the margin looks small.