What a perpetual future is and how funding works

A perpetual future — a perp — is a futures contract that never expires. An ordinary future, like the S&P contracts the desk trades, is pulled back to the real price by its expiry date: on that day it settles to the index, so it cannot drift far from it beforehand. A perpetual has no such day. What holds it near the spot price instead is a stream of small payments between the people who are long and the people who are short, called funding. Understand funding and you understand the instrument, including the part of it that quietly costs money.

Where it came from

The idea is older than crypto. In a 1993 paper Robert Shiller proposed a futures contract with no expiry that "would cash settle every day," as a way to trade assets, like houses, that are hard to deliver. BitMEX turned the idea into a crypto product on May 13, 2016, with what it called "the world's first perpetual XBTUSD leveraged swap." Within a few years nearly every crypto exchange, centralised or on-chain, listed one. BitMEX itself closed on September 23, 2026 — a reminder that in this market the venue is a risk, not just the trade.

The funding mechanism

Every funding interval the exchange computes a funding rate from how far the perpetual has been trading above or below the spot index. When the perp trades above spot — more people want to be long — the rate is positive and longs pay shorts. When it trades below, the rate is negative and shorts pay longs. The payment is not a fee the exchange keeps; it goes from one side of the market to the other, and it is what makes being on the crowded side expensive enough that the crowd thins and the price comes back.

The formula most exchanges use, inherited from BitMEX, is:

funding rate = premium + clamp(interest − premium, −0.05%, +0.05%)

where the premium is the average gap between the perp and the index over the interval and the interest is a fixed baseline, almost always 0.01% per eight hours. When the perp sits exactly on the index the rate is the baseline alone, which is why "longs pay 0.01% every eight hours" is the resting state of a calm market.

What you pay is the rate times your position's notional value. Binance writes it as "Funding Amount = Nominal Value of Positions × Funding Rate." Notional is the whole position, not your margin: a $10,000 position opened with $1,000 of margin pays funding on $10,000.

The arithmetic of holding

Funding is small per interval and large per year, because the intervals are so short. Binance pays it every eight hours, at 00:00, 08:00 and 16:00 UTC, which is three times a day; Hyperliquid pays every hour, one eighth of an eight-hour rate each time, with the rate capped at 4% per hour.

A hypothetical $10,000 long held through a stretch where funding averages 0.03% per eight hours pays $3 per interval, $9 a day, about $3,285 over a year — a third of the position, before a single tick of price movement. Funding rates in a hot market can run far higher than that for days at a time. Anyone who holds a perpetual for more than a few hours is making a bet on the funding rate as much as on the price, and the exchange's own funding history page is the first thing to read before holding one overnight.

Mark price, and where liquidation actually happens

Two prices live on every perpetual's screen. The last price is the most recent trade on that exchange. The mark price is the exchange's estimate of fair value, built from spot indexes across several venues and smoothed, so that one thin trade cannot move it. Liquidation is triggered by the mark price, not the last price — Binance: "liquidation occurs when the Mark Price hits the liquidation price of a position"; Hyperliquid: "liquidations use the mark price." The practical consequence is that your position can be liquidated at a price that never printed on the chart you were watching, and, less often, can survive a wick that did.

The margin arithmetic is the same as any leveraged instrument. Initial margin is the position's value divided by the leverage you chose. Maintenance margin is the smaller amount you must keep to stay open; on Hyperliquid it is half the initial margin at maximum leverage. At 10× leverage, initial margin is 10% of the position, so a move of a little less than 10% against you — less, because the maintenance level sits above zero — ends it. At 50×, a 2% move. At 100×, which some venues offer, one ordinary bad candle. The leverage number on the screen is a description of how small a move will take everything.

Where the risks sit

In order of how often they catch people: funding paid while waiting for a price target; liquidation at the mark rather than at the chart; the venue itself, whose terms, solvency and jurisdiction are part of the trade; and leverage chosen because it was available rather than because the stop implied it. Position sizing from the stop applies to a perpetual exactly as it does to an index future — the only difference is that the perpetual will let you ignore it.

A U.S. trader's map

The large offshore venues restrict U.S. persons in their terms and block U.S. addresses; Hyperliquid, the largest on-chain perpetuals venue, "is not currently available to U.S. traders," as The Block reported in September 2026 while covering a proposal to change that. Since mid-2026, perpetual-style contracts have been available to U.S. customers on venues regulated by the Commodity Futures Trading Commission — the CFTC approved the first in May 2026 and Kraken launched U.S. perpetuals that June. The desk's own crypto area, when it opens, will route only through a regulated venue, and the research behind that choice will be published on this shelf before anything is dealt.

• Spot vs perps vs on-chain: where a trade actually happens
• Holding your own keys: what a signature proves, and what nobody should ask you for
• The vault: hash-based keys and what they protect
• Liquidity pools and impermanent loss, with the arithmetic
• Staking — what you earn, what you risk, what is taxed
• Post-quantum on a token vs in a wallet: what the words can and cannot mean

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