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<h2 id="what-are-perpetual-futures-a-complete-guide-to-perps-2026">What Are Perpetual Futures? A Complete Guide to Perps (2026)</h2>
Perpetual futures — "perps" — are derivatives that let you take leveraged positions on any asset without an expiry date. You can go long or short, hold for seconds or months, and amplify your exposure by 10x, 100x, or more — all without owning the underlying asset.
They're the most traded instrument in crypto. Perpetual futures have become the dominant trading instrument across much of crypto — on many major venues, perp volume consistently exceeds spot by a wide margin. If you've traded DeFi seriously, you've used them or traded around them. If you haven't started yet, this is where the leverage mechanics live.
<h3 id="the-basics-what-makes-a-perpetual-future-different">The Basics: What Makes a Perpetual Future Different</h3>
A standard futures contract has an expiry date. You agree today to buy BTC at $100,000 on June 30. On June 30, the contract settles — you get the asset or the cash difference, and the trade is done.
A perpetual future has no expiry date. The contract never closes unless you close it. You can hold a position indefinitely — and because there's no settlement date forcing convergence to spot price, the mechanism that keeps perp prices anchored to the underlying is different. That mechanism is the **funding rate**.
<h3 id="funding-rate-how-perps-stay-anchored-to-spot">Funding Rate: How Perps Stay Anchored to Spot</h3>
When the perp price trades above the spot price (more buyers than sellers, bullish sentiment), long holders pay a small fee to short holders every few hours. This increases the cost of holding longs, encouraging arbitrage and helping perp prices converge back toward spot.
When the perp price trades below spot (bearish sentiment), short holders pay longs. This increases the cost of holding shorts, creating the same convergence pressure in the other direction.
The funding rate is continuous arbitrage pressure, not a price control. If traders think BTC will keep going up, they'll pay a high funding rate to stay long — and they often do. What the rate tells you is the cost of holding a position in that direction, and the degree of sentiment skew in the market.
For traders: when funding is high and positive, longs are paying shorts. You're being paid to be short in a crowded long market. That dynamic creates its own trading opportunities.
<h3 id="leverage-what-it-actually-means">Leverage: What It Actually Means</h3>
Leverage lets you control a position larger than your deposited collateral.
If you deposit $1,000 and open a 10x long on BTC, you're controlling a $10,000 position. A 5% move in BTC's price creates a $500 gain or loss — 50% of your $1,000 collateral. A 10% adverse move wipes out your collateral entirely.
The math is straightforward:
```
Position Size = Collateral × Leverage
PnL = Position Size × Price Change %
```
Higher leverage amplifies everything: gains, losses, and the speed at which you can reach liquidation. A 100x position gets liquidated on roughly a 1% adverse move, depending on maintenance margin requirements and fees. A 5x position has much more room to breathe.
Leverage isn't inherently dangerous — it depends entirely on position sizing relative to your total account. A professional trader running 100x leverage on 1% of their portfolio has less total risk than a casual trader running 5x on their entire stack.
<h3 id="long-and-short-two-ways-to-trade">Long and Short: Two Ways to Trade</h3>
**Going long** is a bet that the price will rise. You profit if it goes up, lose if it goes down.
**Going short** is a bet that the price will fall. You profit if it goes down, lose if it goes up.
This is what makes perps fundamentally different from spot trading. In simple spot trading, profits typically come from price appreciation — you buy, you wait, you sell higher. Perp markets make both rising and falling prices directly tradeable through long and short exposure.
This is why perps are the core instrument for:
- **Speculation**: Taking directional views on any asset
- **Hedging**: Holding BTC in a wallet while shorting perps to be market-neutral
- **Arbitrage**: Exploiting price differences between venues or between perp and spot
<h3 id="what-you-re-actually-trading-against">What You're Actually Trading Against</h3>
Different perp venues use different settlement models. Understanding which one you're on matters for how your trades actually execute.
**Orderbook model** — you're matched against another trader. A buyer needs a seller. This is how most CEXes work and how some on-chain DEXes are structured. Liquidity depends on how many active market makers and traders are present at any given time.
**LP pool model** — a liquidity pool acts as the counterparty to every trade. LPs deposit capital; the pool takes the other side. When traders lose, the pool gains. When traders win, the pool pays out. Open interest is capped by how much capital is in the pool. Most major perp DEXes (GMX, GLP-style protocols) use this model.
**Protocol-managed liquidity model** — instead of an external LP pool, the protocol provides a virtual liquidity layer that acts as the protocol-managed liquidity and settlement layer. Trades reference oracle prices for execution and mark-to-market; liquidity is managed through the protocol's own mechanism rather than through third-party capital deposits. Open interest scales with protocol risk parameters rather than with the size of an externally supplied LP pool. LeverUp uses this model through what it calls the Virtual Market Making Vault (VMMV) — a protocol-managed virtual liquidity system where execution, settlement, and risk management are handled at the protocol layer.
Each has tradeoffs. Orderbooks offer tight spreads in deep markets but thin out fast in low-liquidity conditions. LP pools can provide readily available liquidity but introduce a structural tension between LP returns and trader outcomes. Protocol-managed liquidity models remove the external LP dependency but place execution and settlement responsibility entirely at the protocol layer — which means the quality of the oracle feed, the liquidation engine, and the protocol's own risk parameters become the critical variables.
<h3 id="collateral-what-you-post-to-open-a-position">Collateral: What You Post to Open a Position</h3>
Your collateral is the capital you put up as security for your position. If the trade moves against you past a certain point, the protocol liquidates the position to recover the collateral and protect the system from bad debt.
Most perp venues accept stablecoins (USDC, USDT) as the primary collateral type. Some also accept the chain's native token or other assets, typically with a haircut applied — a token worth $1.00 might contribute $0.80 of effective margin, reflecting its volatility and liquidity profile.
Collateral type matters for two reasons. First, it determines what you're actually holding as security — a volatile asset as collateral means your margin value can shift independently of your trade. Second, it affects liquidation risk: if your collateral drops in value while your position is open, you can be liquidated even if the trade itself is going in your favor. Understanding what you're posting — and its own price risk — is part of managing a position properly.
<h3 id="key-terms-at-a-glance">Key Terms at a Glance</h3>
Leverage → Multiplier on position size relative to collateral
Margin / Collateral → Capital posted to secure the position
Long → Position that profits when price rises
Short → Position that profits when price falls
Funding Rate → Periodic payment between longs and shorts to anchor perp price to spot
Liquidation → Forced close when collateral falls below the maintenance threshold
Mark Price → Oracle referenced price used for PnL and liquidation calculations
Open Interest → Total value of all open positions on a venue
<h3 id="frequently-asked-questions">Frequently Asked Questions</h3>
**What is the difference between perpetual futures and regular futures?**
Regular futures expire on a fixed date — you're locked into settling the contract by then. Perpetual futures have no expiry. You can hold a position indefinitely and close it whenever you choose. The tradeoff is that perps use a funding rate to keep their price anchored to spot, while traditional futures converge at settlement.
**How does the funding rate work in perpetual futures?**
When perp price trades above spot, longs pay shorts a periodic fee. When perp price trades below spot, shorts pay longs. This creates continuous arbitrage pressure that pulls the perp price back toward the underlying asset's spot price. The rate size reflects how far the perp has drifted and how crowded the directional positioning is.
**What happens if I get liquidated?**
When the market moves against your position far enough that your remaining collateral falls below the maintenance margin threshold, the protocol closes your position automatically. Any collateral above the liquidation threshold is returned to you; whatever covers the bad debt goes to the protocol's liquidation mechanism. You cannot lose more than your posted collateral.
**Can I hold a perpetual futures position forever?**
In theory, yes — there is no expiry forcing you out. In practice, you need to maintain sufficient collateral margin and continue paying (or receiving) the funding rate as long as your position is open. If the market moves against you and you don't add collateral, liquidation will close the position.
**What's the difference between leverage and margin?**
Margin (collateral) is the capital you post to open a position. Leverage is the multiplier that determines how large a position that collateral controls. $1,000 collateral at 10x leverage controls a $10,000 position. Margin is what you risk; leverage is the amplification factor applied to both gains and losses.
**What is mark price in perpetual futures?**
Mark price is the oracle-referenced price the protocol uses for PnL calculations and to determine liquidation. It's distinct from the last traded price on the perp itself. Using a mark price derived from external oracle feeds prevents market manipulation from triggering liquidations — a large trade can't spike the perp price to wipe out positions if the liquidation engine ignores the perp's own last trade price.
<h3 id="where-to-go-from-here">Where to Go From Here</h3>
Perps are the most flexible instrument in crypto — but the leverage mechanic means understanding liquidations before you use significant size. The mechanics of when and how a position gets liquidated, and how to manage that risk, are covered in depth here: [How Liquidations Work on LeverUp →](/how-liquidations-work-on-leverup/)
*Start trading perpetuals on LeverUp: <a href="https://app.leverup.xyz?utm_source=blog&amp;utm_medium=article&amp;utm_campaign=education-what-are-perpetual-futures" rel="noopener noreferrer nofollow">app.leverup.xyz</a>

Understanding Perpetual Futures | LeverUp Learn

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