Perpetual Contract / Perps

A perpetual contract, often called a “perp,” is a type of derivative product that lets you speculate on the price of a cryptocurrency without ever actually owning it — and crucially, without any expiration date. Unlike traditional futures contracts, which have a fixed end date when they must be settled, perps can be held indefinitely. They are one of the most popular instruments in crypto trading, accounting for a massive share of daily trading volume on major exchanges.

The magic that keeps perpetual contracts tied to the real spot price of an asset (rather than drifting away from it) is a mechanism called the “funding rate.” Periodically — often every eight hours — traders who are on the “winning” side of the market pay a small fee to traders on the losing side. If most traders are betting the price will go up (bullish), the funding rate becomes positive, and long traders pay short traders. This creates a financial incentive that constantly nudges the perp price back toward the actual market price of the asset.

Example: Think of a perp like a friendly bet with a neighbor about whether your house’s value will go up or down. Neither of you actually buys or sells the house — you’re just betting on the direction. The bet has no end date; it can go on as long as both of you want. But every week, whoever is on the more crowded, popular side of the bet pays a small fee to the other person to keep things fair. That fee is the funding rate, and the house’s real market price is what the perp is tracking.