Perpetual futures let traders take leveraged long or short positions without an expiry date. Instead of settling on a scheduled date, a position stays open while it meets the venue’s margin rules; periodic funding transfers help keep its contract price near a reference price. The details that determine what you pay, how your position is valued, and when it can be liquidated vary by decentralized exchange (DEX), so a venue’s rules matter as much as the basic contract.
What is a perpetual futures contract?
A perpetual future is a derivative that gives a trader long or short exposure to an underlying asset without requiring ownership of that asset. Traders may use one to speculate on price movements or hedge another position. Unlike a conventional futures contract with a scheduled settlement date, a perpetual has no expiry date. A CFTC-hosted filing explains that perpetual derivatives have “no set date upon which a settlement price is determined and expiring positions are settled.”
Because there is no expiry forcing the contract price to converge with the underlying market at settlement, perpetuals use periodic funding transfers between traders on opposite sides. The filing describes the purpose of this mechanism as helping the perpetual’s price track the underlying asset’s spot price. Funding can encourage traders to take the less crowded side of a premium or discount, but it does not guarantee that the contract price will match spot at every moment.
What happens when you open a position?
A trader selects a market, direction, position size, and order type, then provides collateral. A long position gains value when the relevant reference price rises; a short gains when it falls. The venue’s matching or execution system determines how an order becomes a position, while its margin rules determine how much collateral is required and how much adverse movement the position can withstand.
Leverage means the position’s notional exposure is larger than the collateral committed to it. That magnifies gains and losses relative to the collateral: a relatively small adverse move can consume a large share of the trader’s equity. The exact leverage available and collateral treatment depend on the venue and market.
What are funding rates?
Funding is generally a transfer between traders holding opposite sides of a perpetual, not a universal fixed fee charged by every DEX in the same way. Its direction and amount depend on the contract’s premium or discount to a reference price and the venue’s formula. A positive rate commonly means longs pay shorts; a negative rate commonly means shorts pay longs. A position kept open through multiple funding intervals may make or receive repeated payments, and the rate can change over time.
Hyperliquid’s published funding rules
Hyperliquid’s documentation, accessed in 2026, describes hourly funding. Its published method samples the premium every five seconds and averages those observations over an hour, with an interest component and a clamped adjustment in the rate formula. The documentation states a cap of 4% per hour. These are Hyperliquid-specific published parameters, not general limits or schedules for perpetuals as a whole.
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dYdX’s documented approach
dYdX documentation describes a distinct method combining premium observations made through the hour with an interest component. Its v3 documentation describes hourly funding calculations based on position size, oracle price, and the hourly funding rate. The v3 material is version-specific, and protocol parameters can change; do not assume its schedule or formula applies to every dYdX deployment or market.
Which prices determine position value and liquidation?
A venue may use different prices for trading, account valuation, funding, and risk checks. The last traded price is not necessarily the price used to decide whether an account has met its maintenance-margin requirement. An oracle supplies a reference price, while a mark price is used by a protocol for purposes such as margin calculations and liquidations. The construction and update cadence of these prices vary by venue.
Hyperliquid’s oracle example
Hyperliquid’s documentation, accessed in 2026, says validators publish spot oracle prices every three seconds. It describes the oracle as using a weighted median of spot mid-prices from several venues, followed by a stake-weighted median of validator submissions for the clearinghouse oracle. The oracle contributes to the mark price used in margining and liquidation.
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Archived dYdX v3 example
Archived dYdX v3 documentation describes oracle prices based on the median of 15 Chainlink node reports and index prices based on exchange spot-price medians. This is an example of one version’s documented design, not evidence that all current dYdX deployments use the same configuration.
How do margin and liquidation work?
Initial margin is the collateral threshold for opening or increasing exposure; maintenance margin is the lower threshold an open account must satisfy to remain adequately collateralized. As a position moves against the trader, unrealized losses reduce account equity. Funding payments and fees can also affect the balance. A protocol compares the account’s value with its applicable margin requirements; if value falls below maintenance margin, it may automatically close some or all of the position.
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What price is used to determine liquidations?
The relevant reference or mark price is the one specified by the venue’s risk system, not necessarily the most recent trade price shown in a chart. A liquidation threshold also depends on position size, account equity, maintenance-margin parameters, and—where cross-margin applies—other positions and balances. It can move as those inputs change.
As an illustration rather than a live quote, the dYdX Chain help article works through an isolated short position funded with a $1,000 account, three ETH contracts entered at $3,000, and a 5% maintenance-margin fraction. Under those stated assumptions, its calculated threshold is approximately $3,174.60.
How do decentralized venues execute and liquidate orders?
“Decentralized exchange” does not describe one universal trading architecture. The CFTC-hosted filing describes Hyperliquid as an on-chain order-book venue using price-time priority, while noting that other perpetual venues may use off-chain matching or hybrid systems. Its description of transparent trading and settlement in blockchain state applies to the system it discusses; it should not be generalized to every step of every DEX.
GMX documentation describes another pattern: keepers execute orders against oracle prices rather than passively filling them like resting limit orders on a centralized order book. GMX warns that a related stop-loss or margin order cannot guarantee avoidance of liquidation; a fast price move or the timing of keeper execution relative to liquidation checks can mean liquidation happens first. Its documentation also describes auto-deleveraging (ADL): profitable positions may be reduced in part or in full if a configured ratio of pending profit and loss to pool value is exceeded.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How can you reduce the risk of liquidation?
No action guarantees protection from liquidation or loss, especially in a fast market. Adding collateral can increase account equity, and reducing position size can lower exposure and margin requirements, but both actions depend on the venue’s rules and may not take effect before a rapid price move or liquidation check.
- Before opening a trade, understand the market’s initial and maintenance margin requirements and whether collateral is isolated to that position or shared across positions.
- Check which oracle or mark price drives risk checks, how it is constructed, and how frequently the venue updates it.
- Account for funding that may accrue while the position remains open, as well as trading and liquidation fees.
- Do not treat a stop-loss or related trigger order as guaranteed protection. Execution timing and price movement can prevent it from closing the position first.
- Keep in mind that adding collateral or reducing exposure may alter the margin picture but cannot remove price, execution, or protocol risk.
What should you compare before using a perp DEX?
Read the documentation for the specific venue, market, and protocol version you intend to use. Parameters such as rates, oracle inputs, margin fractions, penalties, and liquidation procedures can change. Compare the mechanics that affect your position rather than assuming that one platform’s rules are industry-wide.
| Venue rule | What to check |
|---|---|
| Matching and execution | Whether orders use an on-chain order book, off-chain matching, a hybrid system, or oracle-priced keeper execution. |
| Reference pricing | Oracle inputs and update cadence; how mark or index prices are constructed; which prices drive funding, valuation, and liquidation. |
| Collateral and margin | Accepted collateral, isolated or cross-margin behavior, initial and maintenance requirements, and how account equity is calculated. |
| Funding | Payment interval and direction, premium calculation, interest component, and any rate cap. |
| Liquidation and backstops | Whether positions are partly or fully closed, liquidation fees, insurance-fund rules, and any ADL or socialized-loss mechanism. |
What risks remain after a venue’s backstops?
Insurance funds and ADL are protocol mechanisms with defined rules and limits, not guarantees that traders will avoid losses or receive a particular outcome. Leverage can exhaust collateral quickly; recurring funding can affect the cost of holding a position; and oracle construction, keeper activity, transaction timing, and protocol parameters can affect valuation and execution. A decentralized venue can also expose traders to risks specific to its implementation. Understand those mechanics before committing funds.
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