What Is a Perpetual Future?

A perpetual future is the most-traded derivative in the world, and also one of the least understood by the people trading it. This guide fixes that. By the end you will understand exactly what a perp is, and the one clever mechanism that makes it work. The one-sentence definition: a perpetual future is a contract that lets you bet on the price of an asset, with leverage, that never expires.

Ordinary futures, and the anchor

To see what is special about a perp, start with a normal futures contract. A traditional future is an agreement to buy or sell something at a set price on a set future date. An oil future might settle in December. When that settlement date arrives, the price of the future has to match the price of the actual asset, because at that moment they are the same thing. The expiry date is what keeps a future honest. It is the anchor. Everyone knows that on settlement day any gap between the future and the real price closes, so the two stay in line in the meantime.

Perps remove the expiry. You get a contract you can hold forever, which is great for traders, but it also takes away the anchor. So what stops a contract that never expires from drifting away from the real price? The answer is the single most important idea in this whole essay.

The funding rate

Perps replace the expiry anchor with a small recurring payment between traders, called the funding rate. The mechanism is elegant. Every few hours, usually every one or eight, traders on opposite sides of the contract pay each other based on which way the perp has drifted from the real price. If the perp is trading above the real, or spot, price, too many people are long, so longs pay shorts. Being long now costs money each period, which makes people less eager to go long and more eager to short, nudging the price back down. If the perp is trading below spot, too many people are short, so shorts pay longs, which nudges the price back up.

The result is a self-correcting tether. Funding does not force the perp to match spot, it just makes drifting away from spot expensive, and that cost is enough to keep the contract honest. Note that the exchange itself does not pay or collect funding: it only moves money between the two sides.

Mark price versus oracle price

Two prices matter on a perp. The oracle price is the true price of the asset, usually built from spot prices on several major markets. It is the reality the perp is trying to track. The mark price is the perp's own current value. It is what the exchange uses to calculate your profit, your loss, and, most importantly, whether you get liquidated.

Leverage and liquidation

Leverage is what makes perps powerful and dangerous in equal measure. It lets you control a position larger than your cash. Say you have $1,000 and open a 5x long on Bitcoin. You now control a $5,000 position. If Bitcoin rises 10%, your position gains $500, a 50% return on your cash. If Bitcoin falls 10%, you lose $500 on a 10% move. If Bitcoin falls roughly 20%, your $1,000 of margin is exhausted and the position is liquidated, automatically closed by the venue, and you lose your entire stake.

Leverage multiplies the percentage move of the asset onto your cash, in both directions. The higher the leverage, the smaller the move that liquidates you, but also the greater the gains on the upside. That is not a reason to avoid perps, but it is a reason to respect them: use modest leverage, size positions so a normal bad day cannot liquidate you, and never put on more than you would be willing to lose.

What can you trade as a perp?

Perpetual futures started in crypto, but the structure works for almost anything with a price. On Freeport you can trade perps on crypto, from BTC, ETH and SOL to hundreds of others; on international stocks, with equity perps on names like Nvidia or SK Hynix; on indices, both broad-market (S&P, Nikkei, Kospi) and sector baskets (semiconductors, memory, photonics); on commodities like gold, oil, wheat and soy; on forex and rates; and even on private companies like SpaceX and OpenAI, via perps on their implied valuations. One account, one margin balance, long or short on any of it. That flexibility, being able to short a sector or hedge a position without selling your holdings, is why perps became a dominant derivative.

The bottom line

A perp is a bet on the price of something, with leverage baked in, that you can hold for as long as you want. It works because of the funding rate. Instead of an expiry date keeping the contract honest, traders pay each other a small fee whenever the price drifts, and that fee pulls things back in line. With perps you can go up or down, on crypto, stocks, indices, even private companies that you could never trade before. If that last part is what brought you here, our guides to trading SpaceX, OpenAI, and Anthropic exposure are the natural next read.