Perpetual futures
What is a futures contract that never expires, and what keeps its price tied to the underlying market?
In plain words
A perpetual futures is a derivative contract with no settlement date, so a position can be held indefinitely. To keep the contract price near the spot price, long and short traders exchange a small payment called funding at fixed intervals; when it is positive, longs pay shorts.
Why it matters
Perpetuals let traders take leveraged exposure without managing expiries, but holding one carries a continuous funding cost or income. A trader long through a period of positive funding pays for the privilege, and that cost can accumulate even when the position's price barely moves.
In a real week: ETH, week of 5 April 2021
For ETH in the week of 5 April 2021, the eight-hour funding rate averaged 0.07%, with a maximum of 0.2097% and a minimum of 0.01%. Over the same week ETH rose 3.65%, closing at 2151.36 and finishing in the upper third of its 13.99% range. A long holder paid funding on top of a modest price gain.
A common mistake
Treating a perpetual like a spot position. The contract has no expiry, but the funding payment means the cost of holding is never zero.