When it comes to crypto and derivatives trading, two of the most popular instruments are perpetual contracts and futures contracts. At first glance, they might seem similar, but both allow traders to speculate on price movements without owning the underlying asset. But in practice, they work very differently.
Futures contracts have a fixed expiry date, making them ideal for structured strategies and hedging. Perpetuals, on the other hand, never expire, offering flexibility for continuous trading and short-term speculation. Each comes with its own pricing behavior, cost structure, and risk profile.
Understanding these differences can help you choose the right one for your trading goals and avoid costly mistakes. This guide will walk you through their key contrasts, practical uses, and what to watch out for in real trading conditions.
Key Takeaway
- Futures contracts have a fixed expiry date, while perpetuals can be held indefinitely without settlement.
- Perpetuals use a funding rate to stay close to the spot price, but futures rely on natural convergence as expiry approaches.
- Futures show a changing basis that disappears at expiry, while perpetual prices adjust in real-time through funding
- Futures are often used for hedging and structured strategies, while perpetuals are more flexible for short-term speculative trading.
- Futures carry rollover and timing risks; perpetuals expose traders to funding cost fluctuations. Both involve margin and liquidation risk.
“Perpetuals give traders the freedom to hold positions indefinitely, while futures are built around a fixed expiry date.”
What is Perpetuals vs Futures?
Futures
A futures contract is a standardized financial agreement between two parties to buy or sell an asset at a predetermined price on a specific future date. Unlike spot trading, where transactions happen instantly, futures allow traders and institutions to lock in a price today for delivery or settlement later.
It expires at a set date in the future and is settled based on the price of the underlying asset (like Bitcoin or Ethereum) at that time.
Futures contracts are typically traded on regulated exchanges (like the CME for commodities and financial products, or Binance Futures for crypto derivatives). Each contract comes with predefined specifications, such as:
- Contract size (e.g., 1 BTC or 5 barrels of oil)
- Tick size (minimum price movement)
- Expiration date
- Settlement method (cash or physical delivery)
- Initial and maintenance margin requirements
Because they are standardized, futures make it easier for market participants to trade and hedge without negotiating individual terms. Futures contracts are powerful financial instruments with two primary use cases:
Hedging:
Businesses and investors use futures to protect themselves against price volatility. A farmer might sell futures contracts to lock in the price of crops months before harvest. An airline might buy futures on jet fuel to secure future fuel costs. A crypto miner might short BTC futures to hedge against potential price declines.
Speculation:
Traders who expect an asset’s price to move up or down can use futures to profit without owning the asset.
If a trader believes BTC will rise, they can go long on BTC futures. If they expect a drop, they can go short.
Futures also allow leverage, meaning traders can control larger positions with less capital, increasing both potential gains and risks.
Perpetuals
A perpetual contract, also known as perpetual futures or simply perps, is a trading contract that has no expiry date and stays close to the real market price using a small fee called the funding rate paid between buyers and sellers. It is a type of derivative contract that closely resembles a futures contract but without an expiration date.
This means traders can hold positions indefinitely, as long as they meet margin requirements. Instead of relying on expiry and settlement, perpetual contracts use a funding rate mechanism, a small fee exchanged between long and short traders at regular intervals (e.g., every 8 hours).
While both futures and perpetuals allow traders to speculate on price movements, there are fundamental structural differences. Perpetual contracts are more flexible for traders who don’t want to worry about contract expiry or rollovers, making them ideal for active traders and speculative strategies.
“Funding rates keep perpetual prices anchored to spot, whereas futures rely on natural convergence over time.”
Key Mechanisms & Components of Perpetuals and Futures Contracts
Understanding how perpetuals and futures actually work helps traders know why their prices move the way they do, how profits are made or lost, and what risks come with each. Let’s break down the main parts that make these contracts function in simple terms.
Price Anchoring / Convergence
This includes how futures converge to spot on expiry and how perpetuals stay close via funding rates.
How futures converge to spot on expiry
Futures contracts have a fixed expiry date. As that date approaches, the price of the contract moves closer to the spot price (the real market price of the asset).
This happens because traders step in to profit from any price gap between the futures and the spot market. If futures are more expensive, traders sell the contract and buy the real asset. If futures are cheaper, they do the opposite. This process is called arbitrage, and it pushes both prices toward each other.
By the time the contract expires, both prices usually meet at the same point. That’s how futures stay tied to real market prices over time.
How perpetuals stay close via funding rates
Perpetual contracts don’t have an expiry date, so they can’t rely on time-based convergence like futures. Instead, they use a funding rate to keep prices in line with the spot market.
If the perpetual price is above the spot price, traders holding long positions pay a small fee to those holding short positions. If the perpetual price is below spot, shorts pay longs. This funding exchange usually happens every 8 hours. It encourages traders to adjust their positions, pulling the price back toward the spot market.
Funding Rate in Perpetuals
The funding rate is usually calculated using;
- The difference between the perpetual price and the spot index price, and
- A base interest rate (to account for holding costs).
The funding rate is a tool used to keep the price of a perpetual contract close to the spot price of the actual asset. It’s like a regular payment made between traders who are buying (longs) and those who are selling (shorts), depending on how far the contract price is from the real market price.
When the funding rate is positive, the contract price is higher than the spot price (called contango), so long traders pay short traders.
When the funding rate is positive, the contract is more expensive than spot (called contango), so longs pay shorts. When it’s negative, the contract is cheaper than spot (called backwardation), so shorts pay longs.
Exchanges usually set limits so funding rates don’t get too extreme. For short-term traders, this is just a normal cost of holding positions. For long-term traders, high funding costs can reduce profits. Overall, this system helps keep perpetual prices anchored to the real market.
Settlement and Rollover
Because futures expire, traders who want to stay in the market must roll over to a new contract when the old one expires. This can create costs if the new contract is priced higher or lower. Professional traders often use strategies like calendar spreads to reduce these rollover costs.
Perpetuals: no rollover, but periodic funding
Perpetuals don’t expire, so there’s no need to roll over. Instead, traders pay or receive funding fees periodically. These small payments are what keep perpetuals balanced and linked to spot prices, replacing the need for expiry and rollover.
Pricing and Arbitrage
A futures contract’s price is often based on the cost of the carry model. This includes:
- Interest rate: the cost of holding money until a future date.
- Storage or carry cost: for physical assets (less relevant for crypto).
- Expected return or yield until expiry.
In short, the longer the time to expiry and the higher the cost of holding, the more the futures price can differ from spot.
Perpetual prices don’t depend on time, but they can deviate slightly from spot due to index premiums (differences in market prices) and funding rates. The funding rate system adjusts these differences, bringing the price back in line with spot.
“Futures are often preferred for hedging, while perpetuals are popular among speculators seeking flexibility and high liquidity.”
Characteristics, Similarities & Differences (perpetual Vs futures) Side by Side
When comparing perpetual contracts and futures, it’s easy to see that they share many features, both are forms of derivatives and serve similar purposes. However, how they work under the hood is very different. These differences affect how traders use them, how profits are made, and what risks come with each.
Key Characteristics of Perpetual Contracts
- No expiry: Perpetual contracts don’t have an expiration date. Traders can keep their positions open for as long as they want, as long as they have enough margin.
- Funding payments: A funding rate is used to keep the contract price close to the spot price. Depending on the price difference, traders either pay or receive this funding.
- Leverage use: Traders can use leverage to control bigger positions with less capital. This can boost profits but also increase losses.
- Margin rules: To keep positions open, traders must maintain a certain margin. If the balance drops too low, the position can be liquidated automatically.
Key Characteristics of Futures Contracts
- Fixed expiry: Futures contracts have a set expiration date. When that date arrives, the contract settles either in cash or by delivering the asset.
- No funding rate: Unlike perpetuals, futures don’t use a funding system. Their price naturally moves closer to the spot price as expiry approaches.
- Leverage access: Futures also allow traders to use leverage, increasing both profit potential and risk.
- Rollover needs: If traders want to keep their position after expiry, they must “roll over” to a new contract, which can involve extra costs.
- Margin maintenance: Futures require traders to hold a minimum margin. If the market moves against them, their position can be closed to prevent further losses.
Similarities
- Both are derivatives
Both perpetuals and futures are derivative products, which means their value comes from another asset (called the underlying asset) such as Bitcoin, Ethereum, or even stocks and commodities.
- Use of margin and leverage
Both types of contracts use margin trading, meaning you don’t need to pay the full position value upfront. Instead, you deposit a smaller amount called margin.
- They’re also affected by liquidity
During periods of low liquidity or sudden price swings, spreads widen, and liquidation risks increase for all traders, regardless of the contract type.
Key Differences between Perpetuals and Futures
| Category | Futures | Perpetuals |
| Expiry / Settlement | Has a fixed expiry date (e.g., monthly or quarterly). All positions are settled at expiry. | No expiry date. Positions can stay open as long as margin is maintained. |
| Funding | No funding rate. Price naturally moves closer to the spot price as expiry nears. | Uses a funding rate to match the spot price. Traders pay or receive a small fee (e.g., every 8 hours). |
| Pricing Behavior | Prices can differ from spot (called basis), but this gap closes at expiry. | Price stays close to spot continuously through funding adjustments. |
| Liquidity & Maintenance | Liquidity depends on contract month. Traders must roll over positions at expiry, which can cost extra. | Usually higher liquidity since trading is continuous. No rollover needed, only funding rate monitoring. |
| Use Case | Common for hedging and long-term strategies, often used by institutions. | Popular for speculation and short-term trading with flexibility and leverage. |
| Risks | Main risk is rollover cost and timing. Also exposed to margin risk during big price moves. | Main risk is funding rate changes, which can get expensive over time. Also exposed to margin risk. |
When to Use either Perpetual or Futures Contracts (Guidance)
It is important that you get to know when to use either of the contracts. The tips below give clarity on which to use and when to use.
For short-term traders
If you’re a short-term trader or day trader, perpetual contracts are often the better choice. They let you open and close positions anytime, without worrying about expiration dates or rolling over contracts. The main cost you’ll face is the funding rate, which is usually small and adjusts every few hours. As long as you monitor that funding cost, perpetuals give you maximum flexibility for quick trades.
By contrast, futures contracts can be less ideal for short-term trades because they may trade at a premium or discount to the spot price (known as the basis). This means you could face small mispricings when opening or closing positions before expiry.
For long-term positions
If you plan to hold a position for weeks or months, futures contracts can be a better fit. They have a fixed expiry date, so you won’t be paying continuous funding fees like in perpetuals. However, you’ll need to manage rollovers, that is, closing an expiring contract and opening the next one.
Perpetuals can become expensive for long-term holding if the funding rate consistently goes against you (for example, paying high positive funding while staying long). Over time, these funding payments can eat into profits.
For hedgers vs speculators
Hedgers (like miners, institutions, or holders of crypto) usually prefer futures because they can lock in a price for a specific future date. This helps protect against price drops or volatility without worrying about ongoing funding fees.
Speculators, who focus on short-term price swings or leverage-based strategies, usually favor perpetuals. Their flexibility and constant liquidity make them ideal for quick entries and exits, especially in volatile crypto markets.
“Both instruments carry risk perpetuals through funding costs, and futures through rollover and timing making smart strategy essential.”
Risks & Challenges (Perpetuals and Futures)
Trading perpetuals and futures can be exciting and profitable, but both come with serious risks that every trader needs to understand. Because these products use leverage and depend on market conditions, small mistakes or sudden price swings can lead to big losses.
Leverage & Liquidation Risk
Leverage lets you control big positions with small money, but it also increases your risk. For example, with 10× leverage, a 1% move against your trade can wipe out 10% of your margin. With even higher leverage, a tiny price move can trigger automatic liquidation of your position.
Because crypto markets move fast, many traders can get liquidated at the same time, making prices swing even more. Using lower leverage and setting stop-loss orders helps reduce this risk.
Funding Rate Risk (Perpetuals)
Perpetual contracts charge or pay a funding fee to keep prices close to the spot price. If funding rates stay high for too long, holding a position gets expensive and can eat into profits even if your trade is correct.
Read Also: What Are Perpetual Futures and How Do They Work?
Basis & Convergence Risk (Futures)
The gap between futures and spot price is called the basis. Normally, this gap closes by expiry, but in volatile markets, it may not.
When prices don’t move in sync, traders face basis risk. If you’re holding a futures position over multiple expiries, the gap can be unpredictable, creating convergence risk. This can hurt hedging or arbitrage strategies.
Regulatory & Jurisdictional Risk
Crypto rules are not the same everywhere. Some countries ban or limit leverage trading, while others are just starting to regulate it. As of 2025, regions like the U.S., Europe, and Asia have tightened rules. Some exchanges restrict users based on location, and regulations can change fast.
Conclusion
Perpetuals and futures may look similar at first glance, but their mechanics, costs, and ideal use cases make them two distinct instruments in crypto trading.
Futures contracts are time-bound, structured, and commonly used by institutional players and hedgers who want to lock in prices or manage exposure over a set period. Their pricing converges naturally with the spot market at expiry, making them a solid choice for longer-term strategies or predictable hedging.
Perpetual contracts, on the other hand, are more flexible, easier to manage, and highly liquid, which makes them a favorite among active traders and speculators. By removing expiry dates and introducing a funding rate system, perpetuals allow positions to stay open indefinitely, but they also introduce unique costs and risks that traders need to monitor closely
Whichever you choose, understanding how each contract behaves, the cost structures involved, and your own risk tolerance is key to using them effectively. In crypto markets where volatility is the norm, knowledge and strategy are your best tools for making smart trading decisions.
FAQs
What’s the main difference between a perpetual and a futures contract?
The biggest difference is that futures contracts have an expiry date, while perpetual contracts never expire. Futures settle on a specific date, but perpetuals use a funding rate to stay close to the spot market price indefinitely.
Which is better for beginners, perpetuals or futures?
Perpetuals are usually easier for beginners because they trade like spot markets and don’t require managing expiries or rollovers. However, beginners should be careful with leverage and funding fees, which can add risk over time.
Do perpetuals always have a funding rate?
Yes. Perpetuals use a funding rate, a small fee exchanged between long and short traders to keep their price aligned with the real market. If you’re long and the market is very bullish, you’ll likely pay funding; if it’s bearish, you might receive funding.
Why do some traders still prefer futures over perpetuals?
Futures don’t have funding fees and are great for long-term hedging or locking in prices. Institutional traders often prefer them because they’re standardized, regulated, and easier to manage for set timeframes.
Can I lose more than my margin in perpetual or futures trading?
In most exchanges, liquidation happens before your balance goes negative. However, high leverage increases the risk of losing your entire margin very quickly. Always use proper position sizing and risk controls to avoid large losses.
Are perpetuals and futures regulated in crypto?
Regulation depends on the country. In 2025, the U.S., Europe, and parts of Asia have started tightening rules around derivatives, especially perpetuals. Major exchanges like Coinbase and Binance are now launching more compliant perpetual and futures products under clearer legal frameworks.
