What are perpetual futures? Crypto derivatives explained

• Perpetual futures are futures contracts that do not have an expiration date.
• Unlike traditional futures, perpetual futures or “perps” use a funding rate mechanism designed to keep contract prices aligned with a reference asset.
• While perpetual futures originated in digital asset markets and account for a significant share of crypto asset trading activity today, they may also have utility for traditional markets.
• The growth of perpetual futures reflects broader trends in financial markets, including increasing demand for leverage and continuous market access.
• Understanding how perpetual futures work can provide insight into how market structure innovation is increasingly shared across digital asset and traditional financial markets.

Perpetual futures (also known as "perps") are a type of derivative contract that allows investors to gain exposure to the price movements of a reference asset without owning the asset itself.

Like traditional futures contracts, perpetual futures track the value of a reference asset. Unlike traditional futures, however, perpetual futures do not have an expiration date.

Traditional futures contracts mature on a predetermined date. Investors who wish to maintain exposure beyond that date typically need to "roll" their position into a new contract.

Perpetual futures remove that requirement. Instead of expiring, the contracts remain open indefinitely, allowing investors to maintain exposure without periodically replacing one contract with another. This can make it easier to manage futures positions for many investors.

Today, perpetual futures are most commonly associated with cryptoassets such as bitcoin and ether, although the structure is increasingly being applied to a broader range of asset classes.

Although perpetual futures and traditional futures share many characteristics, there are important differences. Both products are derivatives that provide exposure to a reference asset. The primary distinction is how that exposure is maintained over time.

A primary difference between traditional futures and perpetual futures is how each keeps the contract price aligned with the price of the reference asset.

• The contract tracks a reference asset. A perpetual future is designed to provide exposure to the price movement of an asset, such as bitcoin or ether, without requiring the investor to own the asset directly.
• Unlike traditional futures, “perps” do not expire. Traditional futures contracts naturally converge toward the spot price as their expiration date approaches. Perpetual futures do not have that built-in endpoint, so they need another way to stay aligned with the price of the reference asset.
• A funding rate helps close the gap. Perpetual futures use a funding rate, which is a periodic payment exchanged between investors holding long and short positions, to ensure the perpetual future price stays aligned with the reference asset price.
• Funding payments depend on where the perpetual futures contract trades relative to the reference asset. When the perpetual futures contract trades above the spot price of the reference asset, investors holding long positions generally pay investors holding short positions. When the contract trades below spot, the payment direction generally reverses.
• The payment creates an incentive to bring prices back in line. These funding payments encourage market participants to trade in ways that help narrow the difference between the perpetual future’s price and the reference asset’s price.
• The goal is price alignment over time. Mechanics can vary by venue, but the objective is generally the same: to help the perpetual futures contract remain close to the market value of the reference asset.

In short: perpetual futures use ongoing funding payments between long and short holders to help keep the contract price close to the reference asset’s spot price, even though the contract never expires.

Many digital asset markets operate continuously, allowing trading to occur around the clock rather than during designated market hours. Like traditional financial markets, digital asset markets also include both spot markets, where assets are bought and sold directly, and derivatives markets, where participants trade contracts linked to another asset.

Perpetual futures emerged as a way of structuring derivative exposure to cryptoassets in a way that suits the needs of an “always-on” market, combining a single, non-expiring contract with continuous trading. They allow market participants to maintain exposure without rolling expiring contracts, concentrate liquidity in a single instrument rather than dispersing it across multiple maturities, facilitate both long and short positions, and provide an efficient way to obtain leveraged exposure through margin.

As a result, perpetual futures have become the most widely traded derivative instrument in digital asset markets. In 2025, centralized crypto exchanges traded approximately $86 trillion in perpetual futures, while decentralized venues traded nearly $6.7 trillion, primarily across cryptoassets such as bitcoin and ether.¹

Although perpetual futures remain most closely associated with cryptoasset markets, many of the forces that contributed to their growth extend beyond digital assets. For example, advances in technology have enabled faster trading, expanded access to information, and reshaped expectations around market accessibility.

As such, the structure has attracted growing interest across additional asset classes as market participants explore how continuous market access, risk transfer, and derivative market design may continue to evolve.

As with any financial instrument, perpetual futures involve risks that market participants should understand before trading them.

Key risks include:

• Leverage and liquidation risk: Like many derivatives, perpetual futures are traded by posting collateral (i.e., "margin") that represents a fraction of a position's notional value. The resulting leverage can amplify both gains and losses. While leverage is common to many derivatives, some perpetual futures venues permit substantially higher leverage than is typically available in traditional futures markets. Investors who choose to use higher leverage may face a greater likelihood of liquidation during periods of market volatility. If a position no longer satisfies the venue's margin requirements, it may be liquidated automatically. On certain venues, if losses from liquidated positions exceed the venue's available resources for managing those losses, the platform may employ auto-deleveraging ("ADL"), reducing or closing certain profitable positions to help absorb the shortfall.
• Cross-margin risk: Some perpetual futures venues allow traders to use cross-margin, in which the entire account balance serves as shared collateral for one position or across multiple positions. While cross-margin may reduce the likelihood of liquidation for an individual position, losses on one position can reduce the collateral supporting other positions and, in some cases, result in substantial losses across the account.
• Funding risk: Unlike traditional futures, where financing is largely embedded in the contract price until expiration, perpetual futures reprice the cost of maintaining exposure through periodic funding payments, which may accumulate over the life of a position. Because funding rates can change while a position is open, the total cost of holding a position depends on the funding rates that apply throughout the holding period, not just the rate when the position is opened or closed. Investors should consider the potential impact of funding rates when evaluating the cost of maintaining a perpetual futures position. The current funding rate is typically published by the trading venue or platform on the contract's product page.
• Counterparty risk: Many perpetual futures are traded on offshore or decentralized venues rather than on regulated, centrally cleared futures exchanges. As a result, the protections available to investors may differ by trading venue. Investors may be exposed to the risk that a counterparty, intermediary, or platform fails to perform its obligations.
• Reference price risk: Unlike traditional futures, perpetual futures rely continuously on one or more reference prices to calculate funding payments and determine when positions should be liquidated. Errors, outages, manipulation, or other disruptions affecting these reference prices or their underlying data sources may affect pricing, funding payments, or liquidations.

As with any derivative, the risks and costs of perpetual futures depend on the investor's objectives, how the instrument is used, and the market conditions in which it is traded.

Perpetual futures are non-expiring derivative contracts that provide exposure to a reference asset and maintain price alignment through a funding rate mechanism rather than a fixed expiration date.

Originally developed in digital asset markets, perpetual futures now account for a substantial share of cryptoasset derivatives trading. Their growth reflects broader trends in financial markets, including the increasing importance of derivatives, growing investor appetite for leverage, and demand for continuous market access.

Understanding perpetual futures can help investors better understand how digital asset markets operate today — and how market structure may continue to evolve in the future.