Perps

What Are Perpetual Futures (Perps)?

Perpetual futures, commonly known as "perps," are a type of derivative contract that allows traders to speculate on the price of an asset without an expiration date. Unlike traditional futures contracts, which require settlement at a predetermined date, perps never expire, giving traders the flexibility to hold positions indefinitely.

This feature makes perps one of the most popular trading instruments in crypto, as they offer exposure to asset price movements while allowing traders to use leverage, hedge risk, and maximize capital efficiency.

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How Perps Work

Perps function similarly to spot trading, but instead of directly buying or selling an asset, traders enter contracts that track the asset's price. The core difference between perps and spot trading is that traders don’t need to own the underlying asset—they are simply speculating on price movements.

To ensure that perps stay closely aligned with the spot market price, a mechanism called the funding rate is used. This rate is periodically paid between long and short traders depending on market conditions: 🔹 If the perp price is higher than the spot price, longs pay shorts to bring the price back in balance. 🔹 If the perp price is lower than the spot price, shorts pay longs to correct the difference.

This funding rate ensures that perps reflect the true market price, preventing extreme deviations.

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Key Benefits of Trading Perps

Perps offer several advantages over traditional trading, making them a go-to instrument for traders looking for flexibility, leverage, and risk management.

✅ No Expiry – Unlike traditional futures, perps never settle, allowing traders to hold positions for as long as they want. ✅ Leverage Trading – Traders can amplify their position size using leverage, gaining more exposure with less upfront capital. ✅ Hedging Opportunities – Investors can open short positions on perps to protect their spot holdings against downturns. ✅ More Capital Efficiency – Since perps don’t require full collateral, traders can use their capital more strategically.

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How Traders Use Perps

1️⃣ Speculation – Traders go long if they believe the price will rise or short if they expect a drop. 2️⃣ Hedging – Investors use perps to protect their portfolio from volatility without selling their spot holdings. 3️⃣ Leverage Trading – By using borrowed funds, traders can increase exposure to price movements and maximize potential gains.

For example, if a trader believes that Bitcoin will rise from $50,000 to $55,000, they can open a 10x leveraged long position with just $5,000 instead of needing the full amount. If the price moves as expected, they can earn the profit of a $50,000 trade while only putting up $5,000 in collateral.

However, leverage also increases risk—if the trade goes against them, losses are magnified just as much as gains.

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Why Perps Are Popular in Crypto

Perpetual futures have become the dominant trading instrument in crypto because they provide deep liquidity, high trading volumes, and round-the-clock trading access. Unlike traditional financial markets, crypto perps run 24/7, making them highly attractive to traders looking to capitalize on market movements at any time.

With no expiration dates, flexible leverage, and effective risk management tools, perps offer traders a powerful way to participate in crypto markets—whether for speculation, hedging, or maximizing capital efficiency.