This perpetual futures beginner’s guide explains perpetual futures (perps in short), simple, non-expiring contracts you can trade in either direction. You can go long if you think the price will rise, or short if you think it will fall, and add modest leverage if you choose.
This market is huge, moving multi-trillion dollars each year; in 2024, the top 10 centralized perpetual exchanges handled about $58.5 trillion in volume. And decentralized perp protocols also grew rapidly, reaching $1.5 trillion in 2024, a 138.1% jump from 2023. So perps matter because they’re where a large share of crypto trading happens today. In this article, you’ll learn what perps are, how they work, plus the best platforms to get you started.
What are perpetual futures?
Perpetual futures, also known as ‘perpetual swaps’, ‘perpetuals’, or ‘perps’, allow traders to speculate on the future price of an underlying asset. Traders don’t need to worry about expiry, as these are perpetual contracts, and they don’t need to own them either. Even though perps are similar to traditional futures, they offer more flexibility and higher leverage.
Furthermore, these contracts don’t require delivery of the underlying asset, making them an attractive option for trading assets with low liquidity. Perpetual contracts use the funding rate mechanism to ensure the contract price is tied to the spot asset price. Though these instruments are popular for speculating on cryptocurrencies like Bitcoin and Ethereum, they can also be applied to other assets, such as commodities and indices.
What is the difference between spot trading and perpetual futures?
| Element | Spot Trading | Perpetual Futures |
| What you hold | The actual coin | A contract linked to the coin |
| Expiry | None | None |
| How you pay | Full price upfront | Small deposit (margin) |
| Ongoing payments | None beyond trading fees | Funding payments between longs and shorts |
| Direction | Buy to benefit from rises | Long or short to benefit from rises or falls |
| Leverage | Not used; you pay full price and gains/losses move about 1:1 with price. | Used; pick a multiple (2x, 5x, 10x) to control a larger position, gains/losses scale by that multiple. |
How do perpetual crypto contracts work?
Perpetual contracts let you go long or short at any time. To open, the platform locks a small deposit called margin. You can turn on leverage to increase the size of the position. Profit or loss changes as the contract price moves, and it’s based on the full position size. There’s no expiry, so you can keep the position open for minutes or months. You pay normal fees when you open and when you close.
The system watches your margin all the time. It uses a reference price called the mark price, so quick spikes don’t cause unfair closes. If losses eat too much of your margin, the position closes automatically; that’s a liquidation. Perps also have small, timed funding payments between longs and shorts to keep the contract price near the market price. You can add or remove margin to give the position more or less room. The positions screen shows price, margin, funding timer, and an estimated close level so you can see what’s happening.
Funding rates
Funding rate is a small, scheduled payment between longs and shorts on a perpetual contract. It helps keep the contract price close to the real market price. If the contract sits above spot, longs pay; if it sits below spot, shorts pay. The rate shows as a tiny percentage on a countdown, often every eight hours. It isn’t a platform fee because the money moves between traders. And it works like a simple nudge that pulls prices back toward spot.
Example: the timer hits and funding is +0.01%. You hold a $100 position. You pay 0.01% of $100, which is $0.01, to the other side. At the next timer, funding is −0.02%. You then receive 0.02% of $100, which is $0.02. Payments happen only at those scheduled times. In this example you’re long, so positive means you pay and negative means you receive. If your position were $1,000 instead, the amounts would be ten times bigger.
Maker and Taker Fees
Maker fees apply when you add a new offer to the system and let it sit until someone matches it. Your offer sets a price and waits instead of filling right away. That adds more choices for everyone because the list of available offers grows.
Think of it as posting “Bike for $100” on a neighborhood board and waiting. Your post adds another option to the board, so the choices grow. Platforms usually charge lower fees here, and some even offer a small rebate. You helped build the availability, so costs are lighter. And maker fees are often the cheaper tier.
Taker fees apply when you choose an offer that’s already on the list and match it instantly. Your action removes that offer right away. This uses the availability that others created rather than adding to it.
Think of seeing “Bike for $100” and messaging “I’ll take it” on the spot. Your action removes that option from the board, so choices shrink. Platforms usually charge a higher fee because you’re paying for an immediate result. You trade higher cost for speed and certainty. But the exact rates depend on the platform and your recent activity.
Here’s a simple cost picture. On a $1,000 trade, a 0.02% maker fee costs $0.20, while a 0.05% taker fee costs $0.50. If you trade often, that gap adds up quickly.
Leverage (explained with numbers)
Leverage lets you control a larger position with a small deposit called margin. Put in $100 at 5× leverage and your position size becomes $500. A 2% rise on the contract equals $10 profit, which is +10% on your $100. A 2% drop equals a $10 loss, or −10% on your $100. The rule is simple: position size = margin × leverage. Leverage doesn’t change the asset; it only scales your profit and loss.
Example 1: You deposit $20 and use 5x leverage. This lets you control a $100 position ($20 x 5). A 1% price change now equals $1 in profit or loss. A 1% gain makes you $1, but a 3% fall means you lose $3 from your $20 deposit.
Example 2: You deposit $100 and use 10x leverage. This lets you control a $1,000 position ($100 x 10). Now, every 1% change in price equals $10 in profit or loss. If the price drops 5%, you lose $50 from your $100 deposit. If your total loss approaches $100, the exchange forces you to close your trade (this is liquidation).
Contract Types: USDT-M, USD-M, and Coin-M Perps
Here’s how the three perpetual contract types differ in plain terms so you can pick the right one.
- USDT-M perps use USDT as the money you put down and the money you win or lose. Your profit and loss are shown in USDT, which stays close to 1 US dollar. This makes planning and tracking costs simple. Most beginners start here if they already hold USDT.
- USD-M perps use USD for margin and settlement, often via USD stablecoins like USDC or a single USD balance on the exchange. Your profit and loss statement shows in USD. In day-to-day use, this feels similar to USDT-M. Pick this if you mainly hold USD stablecoins other than USDT, or if your platform shows a USD balance.
- Coin-M perps use the coin itself for margin and settlement. A BTC contract uses BTC as collateral and pays profits or losses in BTC. Your balance then moves with both trade results and the coin’s own price.
Cross vs Isolated Margin
Margin is the small deposit that backs a futures trade. Exchanges offer two simple modes for that deposit. Cross margin uses one shared pool for all open trades, while Isolated margin locks a fixed amount to one trade. The mode controls how money moves during gains and losses.
With cross margin, every position draws from the same pool. A losing trade can use spare funds from that pool to stay open. A winning trade can refill the pool as profit comes in. Example: you hold $500 in the pool; if a single BTC trade goes down, the platform uses that pool to cover the loss. Liquidation happens only when the shared pool runs too low.
With isolated margin, each position has its own small wallet. Only the money in that wallet covers that trade’s losses and fees. Other trades cannot touch it. Example: you assign $100 to a position; if losses reach that $100, the platform can close that position. Adding more margin to that wallet gives the trade more room.
Cross spreads risk across trades, so one trade can affect the rest while Isolated keeps risk contained, so trades do not pull from each other. In cross, the platform tracks one health number for the entire pool. In isolated, each position shows its own health and close price. Both modes show values in real time on the positions panel, so you can see how funds move.
Position sizing
Position size is how much of the asset you choose to buy or sell, shown in simple dollars. It tells you how big your trade is. First pick a small dollar loss you can accept if you’re wrong. Then choose how far your exit is from your entry. Set the size so a hit to that exit loses only that chosen amount. We’ll use a $500 account to keep the math clear.
If an account is $500, then 1% equals $5. Set an exit 2% away from the entry. Position size equals dollar risk divided by stop distance, so with $5 risk and 2% distance, the position size is $250. The $5 is the loss if the stop is reached. Leverage changes only the cash needed to hold that $250 position. At 5× leverage, the margin required is $50; at 10×, it’s $25. If price reaches the stop, the loss is still about $5 because size was set from the $5 risk and the 2% distance.
Pros and cons of perpetual futures trading
Before you start trading perpetual futures, you must understand their advantages and risks.
Pros
- More liquidity: Perpetual futures contracts are traded heavily. High volume, in turn, allows traders to enter or exit positions quickly without significant price fluctuations or slippage. More liquidity also reduces trading costs by narrowing the bid-ask spread.
- No expiry date: Such a feature allows traders to maintain their positions indefinitely without the need to roll over contracts. Furthermore, without expiration date constraints, traders have more flexibility to examine their strategies and have continuous exposure to the market.
- Cash settlements: Perpetuals settle in cash, so you never handle the underlying asset. That means faster payouts, simpler accounting, and no delivery hassles. Open and close positions anytime without waiting for custody, storage, shipping, or redemption processes.
- Risk management: Perpetual trading is a useful hedging strategy as it allows investors to manage exposure to price movements without owning the underlying asset. Furthermore, traders speculating on short-term price movements can profit from this trading instrument.
- Two-way trading: Perpetual futures allow traders to go long or short. It implies that investors can benefit in various market conditions, i.e., from market uptrends and downtrends.
Cons:
- Funding rate drain: Under perpetual contracts, traders must pay a funding fee at regular intervals, typically every eight hours. Such a fee has the potential to significantly raise the overall cost, especially with large and long-held positions.
- Liquidation Risk: Perpetual contracts require traders to maintain a pre-set margin for the position to remain open. If the market moves unexpectedly and the margin level drops, exchanges may liquidate the position automatically if traders neglect the margin call.
- Complexity for new traders: Perpetual contracts involve several complex concepts, such as funding rates and margin requirements. Newcomers may struggle to understand and implement these concepts in their everyday trade.
- High leverage and volatility risks: High leverage has the potential to magnify returns, but it can also lead to substantial losses if the market moves against expectations. Price volatility in the crypto market is another risk that investors need to consider when trading perpetual features.
Perpetual futures strategies
Perpetual futures are a useful instrument, but to make serious gains, traders must also consider their strategy for how to trade futures. Here are five simple ways to trade crypto perpetuals:
1. Speculation (Directional Trading): This is a direct bet on where price goes next. A trader buys (long) to benefit from rises, or sells (short) to benefit from falls. There is no hedge or offset; the entire idea is the direction. Profit and loss follow price movement.
2. Hedging: This pairs an existing coin holding with an opposite perpetual contract. Losses on the coin can be balanced by gains on the perp, and the reverse. The goal is not new exposure but reduced swings. It is an offset that aims to steady total value.
3. Arbitrage: This targets small price gaps between related markets. A trader buys the cheaper version and sells the pricier version at the same time. The intention is to capture the difference as it closes. Profit comes from the gap, not a view on direction.
Common beginner mistakes on Perps
Beginners lose money on perps for a few reasons:
- Using too much leverage. Small price moves turn into big losses, and your trade can be closed by the platform.
- Sizing trades by feeling, not a plan. Random sizes lead to random results.
- Chasing price after big moves. Buying highs or selling lows often means poor entries and quick reversals.
- Ignoring fees and the funding rate. Trading costs and funding payments can eat profits over time.
Keep these in check and you’ll protect your balance while you learn the basics.
Where to trade perpetual futures
Several platforms now support perpetual futures trading to meet the growing demand among traders. Some of the best crypto exchanges to trade perpetual contracts are:
1. Coinbase
Coinbase allows perpetual futures trading through its Advanced platform. The trades are usually settled in USDC, which helps to reduce price volatility. This perp exchange allows traders to trade in several cryptocurrencies, including Bitcoin, Ethereum, and more. Perpetual futures trading on Coinbase comes with 0% maker and 0.03% taker fees + up to 5.1% USDC rewards on the trading balance.
2. Kraken
Kraken offers more than 95 perpetual futures, making it a suitable platform for traders of all kinds. The USD linear perpetual futures is a key product of the Kraken exchange, allowing traders to exploit the market opportunities by taking two opposite positions – long or short – simultaneously. Kraken’s futures fee starts at 0.02% (maker’s fee) and 0.05% (taker’s fee). The maker’s fees can be reduced further if traders meet the trading volume requirements.
3. MEXC
MEXC supports both USDT-M and Coin-M perpetual futures, including leverage up to 500x for USDT-M and up to 200x for Coin-M. Furthermore, the exchange has one of the lowest futures fees in the market, including a maker’s fee of 0% and a taker’s fee of 0.02%. Separately, MEXC offers pre-market perpetual futures, a type of derivative instrument that allows trading of coins even before they are officially listed.
4. Hyperliquid
Hyperliquid is a decentralized exchange built for perpetual futures on its own blockchain, so trades happen directly on-chain. You trade USD-quoted contracts using USDC as your margin. Fees are simple at the base tier: maker 0.015% and taker 0.045%. Many markets support leverage, with maximums up to 50× depending on the asset. The platform uses a familiar order book with fast matching, so it feels like a regular exchange while remaining on-chain.
How to get started with perpetual futures
Create an account and complete KYC to unlock the futures platform.
Create an account, complete KYC (mandatory for most regulated exchanges like Kraken/Coinbase), and navigate to the Futures or Advanced Trading section (e.g., Coinbase Advanced, Kraken Pro). You must accept the risk disclosures to unlock derivatives trading.
Deposit your trading capital into your main exchange account
This is where you first send the capital you intend to use for trading. Stablecoins (USDC, USDT) are most common.
Transfer funds to your dedicated margin wallet for collateral
Your collateral (margin) must be in the correct segregated wallet to be used for futures positions. Only the funds in this wallet are at risk of liquidation.
Select the perpetual contract you wish to trade (e.g., BTC/USDT)
Select the asset pair (e.g., BTC/USDT Perpetual) and confirm the contract type (often “Perpetual Swap” or “Perps”).
Set your preferred leverage and choose a Margin mode
Leverage determines your effective position size (e.g., 10x). Choose Isolated Margin (limits risk to the margin of that position) or Cross Margin (uses all funds in your margin wallet as collateral). Start with Isolated to manage risk better.
Define the position size, direction (Long/Short), and order type
Decide whether to go Long (buy) or Short (sell). Select an Order Type (Limit or Market) and specify the amount/size of the contracts you wish to buy or sell.
Practice this exact flow several times in Demo Mode until it feels automatic, then keep the same rules when you switch to real funds.
Conclusion
Perpetual futures provide traders an appealing opportunity to speculate on the future price of an asset without worrying about an expiration date. Furthermore, with features like high flexibility, high leverage, and the ability to work as a hedge, perp trading an attractive option for traders looking to capitalize on market trends.
Perpetual contracts, however, are not without risks and thus require careful risk management. Moreover, a thorough understanding of perpetual futures’ mechanics (funding rates, margin requirements, and more) and complementary strategies (Speculation, hedging, arbitrage, and more) will help traders make informed decisions and protect their investments.
