Perpetual futures explained: funding rates, leverage and liquidation

Perpetual futures, or “perps”, are the most traded way to speculate on crypto prices with leverage. The US Commodity Futures Trading Commission (CFTC) describes perpetual contracts as a dominant form of crypto derivative trading worldwide, with most of that trading so far on offshore venues. They look like ordinary futures on a trading screen, but they work differently in ways that matter for anyone holding a position for more than a few minutes.

This guide explains how perpetuals differ from dated futures, how the funding rate works, why exchanges use a mark price, and what happens when a position is liquidated. It also sets out where retail traders can and cannot use them. It does not forecast prices.

No expiry, so something else has to do the work

A traditional futures contract has a fixed expiry date. As that date approaches, the futures price converges with the spot price of the underlying asset, because at expiry the two must meet. The CFTC calls this convergence inherent to the design of a futures contract.

A perpetual contract has no expiry date, so it needs another way to stay close to the spot price. The mechanism that emerged in crypto markets is the funding rate: a periodic payment between the holders of long and short positions. Traders never have to roll from an expiring contract to the next one, and liquidity sits in a single contract rather than being split across several expiry dates. The trade-off is that holding a perpetual carries a running cost or income that a dated future does not.

How the funding rate works

The funding payment depends on the gap between the perpetual’s price and the spot price. When the perpetual trades above spot, traders with long positions pay those with short positions. When it trades below spot, shorts pay longs. The CFTC explains that the payments are meant to reward traders for taking whichever side is receiving them, which pushes the two prices back together.

Exchanges set out their own formulas. Binance, for example, says its default funding interval is every eight hours, at 00:00, 08:00 and 16:00 UTC. Its rate combines an interest-rate component, set by default at 0.01% per interval (0.03% a day), with a premium index that measures the gap between the perpetual and spot prices, and a clamp that limits how far the interest component can move the result. Binance says it does not charge a fee on funding: the payments pass directly between traders on opposite sides.

For a trader, the practical points are these:

• Funding is charged on the position’s notional value, not on the margin put up, so leverage magnifies it.
• The rate changes. In a market where many traders want to be long, longs can pay funding interval after interval.
• A trade that looks cheap on spreads and commissions can still be expensive to hold.

Mark price versus last price

The last price is simply where the perpetual last traded. Because a thin or volatile order book can print prices far from the wider market for a moment, exchanges generally value open positions using a separate mark price instead.

Binance describes its mark price as a better estimate of a contract’s value than the perpetual’s own last price, because it is less volatile in the short term. It is built from a price index drawn from spot prices on a list of exchanges. Binance says the purpose is to prevent unnecessary liquidations and to discourage manipulation. Unrealised profit and loss, and the trigger for liquidation, are calculated from the mark price, which means a position can be liquidated even if the last traded price on the screen never touched the trader’s liquidation level.

Leverage and liquidation

Perpetuals are margined products. A trader posts collateral and can control a position many times larger than that collateral. Each position also has a maintenance margin: the minimum collateral the exchange requires to keep it open.

Binance’s documentation states the rule plainly. When collateral, including realised and unrealised profit and loss, falls below the maintenance margin, the position is liquidated. Binance first tries to reduce the position with a single large order and stops if that restores enough margin; otherwise the whole position is closed. A liquidation clearance fee is deducted from positions that are liquidated but not bankrupt.

The higher the leverage, the smaller the adverse price move needed to reach that point. Funding payments also reduce collateral over time, so a leveraged position that pays funding moves closer to its liquidation price even if the market does not move.

Insurance funds and auto-deleveraging

Sometimes a liquidation cannot be completed at a price that covers the trader’s losses, leaving a bankrupt position with a negative balance. Exchanges keep an insurance fund to absorb these losses. Binance says its fund absorbs losses from bankrupt positions and retains any profits from them.

If the insurance fund cannot absorb a bankrupt position, the last step is auto-deleveraging (ADL). The exchange closes the bankrupt position against traders on the opposite side who are in profit. Binance says the most profitable and most highly leveraged positions are queued first, that each position shows an indicator of how likely it is to be deleveraged, and that no trading fee is charged to the trader whose position is closed this way. The risk to understand is that a winning position can be closed without the trader choosing to close it, usually at the moments when markets are most disorderly.

Where perpetuals are allowed

United States. Perpetuals have been moving into CFTC-regulated markets. In a June 2025 speech, then Acting Chairman Caroline Pham said Bitnomial’s perpetual bitcoin futures went live in April 2025, the same month CFTC staff asked for public comment on perpetual contracts. On 29 May 2026 the CFTC approved KalshiEX’s BTCPERP contract, a perpetual referencing the spot price of bitcoin, as a futures contract. The approval order says the contract trades 24 hours a day, seven days a week, in units of one ten-thousandth of a bitcoin, and is marked to market continuously. Kalshi’s submission said it would be available to the general public, including retail participants. The CFTC also issued a policy statement saying perpetuals on other asset classes should go through its case-by-case review and approval process, and in June 2026 it asked for public comment on perpetuals referencing energy commodities such as crude oil. Our republished text of Pham’s speech sets out the questions the agency was asking at the time.

United Kingdom. The Financial Conduct Authority banned the sale, marketing and distribution to retail consumers of derivatives referencing certain cryptoassets, with effect from 6 January 2021. When it proposed lifting its ban on crypto exchange-traded notes in June 2025, the FCA said the ban on retail access to cryptoasset derivatives would remain in place.

European Union. The EU’s CFD rules, first adopted by the European Securities and Markets Authority (ESMA) in 2018 and since replaced by national measures, cap leverage for retail clients on crypto CFDs at 2:1 and require margin close-out, negative balance protection and a standard risk warning. In a February 2026 statement ESMA said derivatives marketed as perpetual futures are likely to fall within those rules where they meet the definition of a CFD. It added that the product’s name, a funding-rate mechanism and voluntary features such as insurance funds are not relevant to that assessment.

Before trading a perpetual

Check who the counterparty is and which regulator, if any, supervises the venue. Read the exchange’s own pages on funding, mark price, liquidation and ADL, because the details differ between venues. Work out what funding would cost over the period you expect to hold the position, and how far the mark price would need to move to reach your liquidation price. Leveraged perpetuals can lose money quickly, and the mechanics above explain how.