What Are Perpetual Futures?

Perpetual futures (or "perps") are derivative contracts that allow you to buy or sell an asset at a specified price, but unlike traditional futures, they never expire. This means you can hold your position as long as you want without worrying about settlement dates or rolling over contracts.

Invented by BitMEX in 2016 and popularized across crypto, perpetual contracts have become the dominant trading instrument, accounting for over 70% of all crypto trading volume. Their flexibility and capital efficiency make them the preferred choice for both retail and institutional traders.

Key Difference: Traditional futures contracts expire on a specific date (monthly, quarterly, etc.), requiring you to either close your position or roll it forward. Perpetual futures never expire, giving you unlimited flexibility to manage your trades.

How Do Perpetuals Work?

Long vs. Short Positions

With perpetuals, you can profit from both rising and falling markets:

  • Long Position (Buy): You profit when the price goes up. If you buy SOL perpetual at $100 and it rises to $110, you make $10 profit per contract.
  • Short Position (Sell): You profit when the price goes down. If you sell BTC perpetual at $40,000 and it drops to $38,000, you make $2,000 profit per contract.

Leverage: Amplifying Your Positions

Perpetuals allow you to trade with leverage, meaning you can control a larger position with less capital. For example:

  • With $1,000 and 10x leverage, you can open a $10,000 position
  • With $1,000 and 20x leverage, you can open a $20,000 position

⚠️ Important: Leverage is a Double-Edged Sword

While leverage amplifies your potential profits, it also amplifies your losses. With 10x leverage, a 10% move against you can wipe out your entire position (liquidation). Always use leverage responsibly and manage your risk carefully.

Funding Rates: Keeping Price in Check

Since perpetuals never expire, exchanges use a "funding rate" mechanism to keep the perpetual price close to the spot price. Here's how it works:

  • Positive Funding Rate: When perpetual price > spot price, long positions pay shorts
  • Negative Funding Rate: When perpetual price < spot price, short positions pay longs

Funding payments typically occur every 8 hours. This creates a natural balancing mechanism that prevents the perpetual price from diverging too far from the underlying asset's spot price.

Why Trade Perpetuals?

🎯 Key Advantages

  • No Expiration: Hold positions as long as you want without rolling over contracts
  • Leverage: Control larger positions with less capital (1x to 125x depending on platform)
  • Short Selling: Profit from falling markets just as easily as rising markets
  • High Liquidity: Perpetuals markets have deep liquidity, making it easy to enter and exit large positions
  • 24/7 Trading: Trade anytime, unlike traditional futures markets with limited hours
  • Capital Efficiency: Use margin to trade multiple positions simultaneously

Understanding Margin & Liquidation

Initial Margin

The initial margin is the collateral you need to post to open a position. For example, with 10x leverage:

  • Position Size: $10,000
  • Required Margin: $1,000 (10%)
  • Leverage: 10x

Maintenance Margin & Liquidation

Your position has a liquidation price—a point at which the exchange automatically closes your position to prevent further losses. This happens when your losses approach your initial margin.

Example: You long BTC at $40,000 with 10x leverage and $1,000 margin. Your liquidation price might be around $36,000 (10% drop). If BTC hits this price, your position is automatically closed and you lose your $1,000 margin.

Perpetuals on Jupiter (Solana)

Jupiter offers a decentralized perpetuals platform on Solana with several unique advantages:

  • On-Chain Transparency: All trades and positions are verifiable on the blockchain
  • Non-Custodial: You maintain control of your funds at all times
  • Low Fees: Solana's fast, cheap transactions mean lower trading costs
  • Up to 100x Leverage: Available on major pairs like SOL, BTC, ETH
  • Oracle-Based Pricing: Uses Pyth and Switchboard oracles for accurate price feeds

Getting Started: Best Practices

📋 Essential Tips for Beginners

  • Start Small: Begin with low leverage (2x-5x) until you understand the mechanics
  • Use Stop Losses: Always set stop-loss orders to limit potential losses
  • Manage Risk: Never risk more than 1-2% of your capital on a single trade
  • Understand Funding: Factor funding rates into your trading strategy
  • Monitor Liquidation: Keep your liquidation price far from current price
  • Practice First: Use testnet or demo accounts to learn without risk
  • Study Successful Traders: Use PerpsTracker to analyze top traders' strategies and metrics

Common Mistakes to Avoid

  • Over-Leveraging: Using maximum leverage (50x-100x) dramatically increases liquidation risk
  • Ignoring Funding Rates: Long-term positions can be expensive if funding is consistently against you
  • No Risk Management: Trading without stops or position sizing rules
  • Emotional Trading: Revenge trading or fear-based decisions after losses
  • Neglecting Liquidation Price: Not monitoring how close you are to liquidation

Next Steps

Now that you understand the basics of perpetual futures, you're ready to dive deeper:

🎓 Ready to Track Your Performance?

PerpsTracker helps you analyze your perpetuals trading performance across multiple timeframes. See how you rank against other traders, identify your strengths and weaknesses, and improve your strategy with data-driven insights.

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