Crypto perpetual futures are derivative contracts with no fixed expiry. Traders can hold them indefinitely, subject to the exchange’s rules, while periodic funding payments are designed to help keep the contract price near a reference spot price. Leverage lets a position be larger than the margin backing it, but if losses or other debits leave too little margin, the exchange may liquidate the position.
What is a crypto perpetual futures contract?
A perpetual future, often called a perpetual swap, tracks the price of an underlying asset such as bitcoin without an expiry or scheduled settlement date. A dated futures contract reaches an expiration event; a perpetual does not. Instead, exchanges commonly use funding payments between long and short position holders to encourage the perpetual price to stay near a reference spot-market price. Funding is an incentive, not a guarantee: the contract can trade above or below that reference.
The CFTC’s 2021 staff paper, Who Trades Bitcoin, describes funding as periodic payments between long and short holders. The exact contract terms, reference markets, and rules depend on the exchange and product.
What is a funding rate, and who pays it?
A funding rate is a percentage applied to a position’s value to calculate a payment at a specified funding time. Under Bybit’s published contract rules, the funding fee is position value multiplied by the funding rate. The sign of the rate determines which side pays:
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| Funding rate | Typical payment direction |
|---|---|
| Positive | Longs pay shorts |
| Negative | Shorts pay longs |
For example, using a hypothetical position value of $10,000 and a hypothetical funding rate of 0.01%, the payment would be $1 for that funding event ($10,000 × 0.0001). This illustrates the arithmetic only; it is not a market rate or a forecast. Position value, rate calculation, settlement timing, and payment treatment are contract-specific.
Funding is a transfer between position holders under the relevant contract rules, not a prediction that the price will rise or fall and not guaranteed income. A trader may owe funding even if the underlying price has not moved in the direction they expected.
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Why does funding change, and when is it paid?
Funding rates vary as market conditions and venue calculations change. Binance describes its funding rate as combining an interest component and a premium component. Bybit likewise describes a rate based on interest and an average premium index, calculated during an interval and applied at the funding timestamp. These are examples of venue formulas, not a universal formula for all perpetuals.
Settlement cadence is also not universal. Bybit’s contract rules list 00:00, 08:00, and 16:00 UTC funding timestamps for the contracts covered by that documentation. Binance says an interval can differ from the default and documents automatic interval changes for some USDⓈ-M contracts when rates reach specified caps or floors. Before opening or holding a position, check the specific contract’s current rate, next-funding time, interval, and applicable rules on the venue.
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Leverage gives a trader exposure larger than the collateral or margin committed to a position. This magnifies both gains and losses relative to that margin. If losses reduce the account or position margin below the exchange’s maintenance requirement, the venue can close some or all of the position under its risk rules. The exact process and liquidation price depend on the contract, margin mode, risk tier, collateral, fees, funding, and venue calculations; there is no single liquidation formula that applies everywhere.
Mark price is not always the last traded price
Some venues use a mark price, rather than the most recent trade price, to assess unrealized profit and loss and trigger liquidation. Bybit’s documentation describes its mark price as an index-based fair-price measure and says that mark price triggers liquidation; its index price is derived from weighted spot-market quotes. Other venues may use different methods, so a brief move in the last trade does not necessarily indicate that a position has crossed its liquidation threshold—or that it has not.
Funding can affect the margin cushion
Funding payments can change the funds available to support a position. Binance says funding is deducted from available Futures Account balance and, if that is insufficient, may be deducted from position margin; under that rule, the deduction can affect liquidation price. This is a documented Binance treatment, not a universal rule. Check how the chosen contract handles funding debits and credits.
The CFTC staff paper warned in 2021 that comparatively high leverage can make a modest adverse price move result in forced liquidation at a loss. Its historical leverage examples should not be treated as current exchange limits or as a guide to what a particular product permits today.
What should you compare before trading a perpetual?
Contract labels alone do not tell you the risk or cost. Compare the actual terms for the specific asset, contract, and venue:
- Funding: formula, current rate, next settlement time, cadence, caps or floors, and how payments affect balances or margin.
- Price references: which spot markets feed the index and how the venue calculates mark price.
- Margin and liquidation: initial and maintenance requirements, risk tiers, liquidation triggers, and what happens when a position approaches its threshold.
- Contract economics: collateral and settlement denomination, and whether the contract’s value is calculated in the asset or in a currency such as a stablecoin.
- Eligibility: whether the product is available to you under current rules in your location.
The CFTC’s 2021 staff paper distinguishes perpetual swaps from CME Bitcoin futures by features including settlement mechanism, denomination, leverage, regulation, and availability to U.S. persons. Its descriptions reflect the paper’s date and are not current legal advice or a determination of anyone’s eligibility. Check current venue terms and applicable local rules.
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