What Are Perpetual Futures?

John.H·Sep 9, 2026·9 min read

A perpetual future is a derivative contract that tracks an asset's price without ever expiring. Centralized perpetual exchanges processed $85.3 trillion in volume during 2025.

A perpetual future is a derivative contract that tracks the price of an underlying asset without ever expiring. A trader can hold a long or short position indefinitely, provided they maintain sufficient margin. Positions are cash-settled, meaning only profit and loss changes hands rather than the underlying asset itself.

Perpetual futures are the most traded crypto instrument ever created. Centralized perpetual exchanges processed $85.3 trillion in volume during 2025, according to CoinGecko's State of Crypto Perpetuals Report. In September 2026, the instrument began expanding into assets that have nothing to do with crypto, which makes understanding its mechanics relevant well beyond digital asset markets.

How Perpetuals Differ From Traditional Futures

A standard futures contract has a settlement date. When that date arrives, the contract expires and the position must be closed or rolled into a new contract at a different price.

Perpetual futures eliminate that mechanic entirely. There is no expiry, no roll, and no settlement date to manage.

The design solves a liquidity problem. Traditional futures markets fragment activity across multiple expiry dates, so a trader wanting exposure must choose between the September contract, the December contract, and every other listed month, each with its own order book and its own price. Perpetuals consolidate all of that activity into a single continuously traded market.

The tradeoff is that a contract with no expiry has no natural mechanism forcing its price to converge with spot. Traditional futures converge at expiry by definition. Perpetuals require an engineered substitute, which is the funding rate.

Where Perpetual Futures Came From

BitMEX launched the first perpetual swap, the XBTUSD contract, on May 13, 2016.

The concept originated with BitMEX co-founder Ben Delo, a mathematician who worked through the expiry problem during a 2015 hike in Hong Kong with a derivatives trader. The design drew on a 1993 academic concept and borrowed a funding mechanism from currency markets, adapting it to a 24-hour trading environment.

Adoption was rapid. By 2020, every major crypto derivatives exchange had launched its own version of the product. Perpetual futures now account for the overwhelming majority of crypto derivatives volume, and on many venues daily perpetual turnover exceeds spot market volume for the same asset.

What Is the Funding Rate?

The funding rate is a periodic payment exchanged directly between long and short position holders that keeps the perpetual contract price aligned with the spot price. No exchange fee is involved. The payment flows from one side of the market to the other.

When the perpetual trades above the index price, meaning demand for long exposure exceeds demand for short exposure, the funding rate turns positive. Longs pay shorts, proportional to position size. This creates a carrying cost for long positions and a carrying benefit for short positions, pushing traders to close longs and open shorts until the perpetual price falls back toward spot.

When the perpetual trades below the index price, the rate turns negative and shorts pay longs. The same rebalancing pressure operates in reverse.

Most exchanges calculate and settle funding every eight hours, at 00:00, 08:00, and 16:00 UTC. Some venues, including dYdX and Coinbase, settle hourly. The rate itself combines an interest rate component reflecting the cost of capital with a premium index measuring how far the perpetual has deviated from spot using order book depth.

Why Funding Rates Signal Market Positioning

Funding is a real and frequently underestimated cost. A position held through a period of elevated positive funding can accumulate significant carrying costs even when the underlying price does not move at all.

Funding rates also work as a positioning indicator. Persistently positive funding signals crowded long exposure. Persistently negative funding signals crowded shorts.

The August 2026 short squeeze followed exactly this pattern. Short positions had become so crowded across the market that any upward catalyst would force mass covering. When one arrived, $9.71 billion in positions were liquidated over 14 days, split between $6.55 billion in shorts and $3.16 billion in longs. Shorts accounted for roughly 67% of the total.

Reading funding rates alongside open interest is one of the few ways to assess how much leverage sits on each side of a market before a move happens rather than after.

Mark Price and Index Price Explained

Two separate prices govern a perpetual position, and confusing them is a common source of unexpected liquidations.

The index price is a fair-value estimate of the spot market, calculated as a weighted average across multiple spot exchanges. Sourcing from several venues prevents a price anomaly on any single exchange from distorting the reference.

The mark price is the theoretical fair value of the futures contract itself. It typically derives from the index price, adjusted for the basis between perpetual and spot, and often incorporates a volume-weighted average of recent order book mid-prices.

The mark price, not the last traded price, determines unrealized profit and loss, funding settlement, and liquidation triggers. This distinction exists because the last traded price can spike or collapse briefly during thin liquidity. An exchange liquidating on last traded price would expose every leveraged trader to manipulation by anyone willing to push a thin order book for a few seconds.

How Liquidation Works

Liquidation is the forced closure of a leveraged position when the trader's collateral falls below the exchange's minimum requirement.

Two margin levels matter. Initial margin is the collateral required to open a position. Maintenance margin is the minimum collateral required to keep it open. When the mark price moves against a position far enough that the margin balance falls below maintenance, the liquidation engine takes control of the position.

Maintenance requirements vary by asset and by venue, and every exchange publishes its own tier table. Major assets carry the lowest requirements. Smaller-cap assets carry higher ones because they are less liquid and more prone to gap moves. Requirements also scale upward with position size, since larger positions are harder to unwind without moving the market, which means effective maximum leverage falls as a position grows.

When liquidation triggers, the exchange closes the position at the best available price. If the close executes better than the bankruptcy price, the surplus margin flows into the exchange's insurance fund. If it executes worse, the insurance fund absorbs the shortfall.

What Happens When the Insurance Fund Runs Out

The insurance fund is the buffer between individual trader losses and systemic bad debt. It accumulates during normal conditions from favorable liquidations and draws down during volatile periods when liquidations execute at unfavorable prices.

If the insurance fund depletes, exchanges fall back to auto-deleveraging, commonly abbreviated as ADL. Auto-deleveraging forcibly closes the positions of the most profitable, highest-leverage traders on the opposite side of the market to cover the remaining shortfall.

A trader can be closed out of a winning position through no fault of their own, simply for being profitable and highly leveraged at the moment the system ran out of other options.

This mechanism explains why aggregate leverage and liquidation cascades are structurally linked. High aggregate leverage means small price moves trigger liquidations. Liquidations generate forced market orders. Forced orders move price further in the same direction, triggering more liquidations. The August 2026 event is a textbook case of that feedback loop running at scale.

Who Dominates the Perpetuals Market

Centralized exchanges still handle most perpetual volume, though activity has cooled from its peak. Monthly average trading volume declined 34%, falling from $7.11 trillion in 2025 to $4.69 trillion across the first four months of 2026, according to CoinGecko.

Decentralized venues have taken share during the same period. Perpetual DEXs captured more than 13.5% of total crypto perpetuals open interest by April 2026, up from roughly 3.6% earlier that year. Perp DEX open interest reached approximately $20.9 billion in August 2026.

Hyperliquid leads that category by a wide margin. Its open interest has run several times larger than its nearest competitor, Aster, throughout 2026, with reported share estimates varying depending on which venues each tracker counts.

Hyperliquid has also pushed perpetuals beyond crypto. Its HIP-3 framework, launched in October 2025, lets anyone deploy a perpetual market by staking 500,000 HYPE tokens. Those markets now cover tokenized equities, indices, and commodities, and open interest across them hit a record $2.65 billion on May 21, 2026.

Perpetuals Are Moving Into Traditional Assets

Two announcements in early September 2026 marked the clearest expansion of perpetual futures beyond crypto to date.

Polymarket launched a perpetuals platform on September 3, 2026, scaling from 10 markets to 67 within hours. The lineup spans 24 crypto assets, 36 stocks, three indices, and four commodities, with leverage up to 20x. The product is available to international users only, with US traders routed to a separate CFTC-regulated venue.

Two days earlier, on September 1, Coinbase Derivatives filed Form 1-N and Coinbase Financial Markets filed Form BD-N with the SEC, seeking to list single-stock perpetual futures in the United States. Coinbase has run stock perpetuals internationally since March 2026 on Apple, Microsoft, Nvidia, and Amazon, cash-settled in USDC with leverage up to 10x on individual names.

The regulatory question is unresolved. CME Group sued the CFTC in June 2026, arguing that perpetual contracts meet the Dodd-Frank definition of swaps and should not be regulated as ordinary futures. The CFTC called the case frivolous.

What This Means for Market Participants

For liquidity providers and market makers, perpetuals carry exposures that spot markets do not.

Funding rate exposure is continuous and directional. A market maker hedging inventory through perpetuals absorbs funding costs that shift with aggregate market positioning, and those costs are not always predictable from price action alone.

Liquidation cascades create episodic liquidity demands. During a cascade, forced orders arrive in size and in one direction, and spread widens precisely when execution quality matters most. Providing liquidity through those windows requires capital discipline and a clear view of how deep a cascade can run.

Venue fragmentation compounds both issues. With activity split across centralized exchanges, perpetual DEXs, prediction market platforms, and now traditional brokerages, the same asset can carry different funding rates and different liquidation parameters depending on where it trades.

What to Watch

Coinbase's SEC notice registrations do not guarantee a launch. CFTC approval is still required before any US listing of single-stock perpetuals, and no timeline has been published.

The CME lawsuit against the CFTC is the more consequential item. If a court accepts CME's argument that perpetuals are swaps rather than futures, the regulatory structure underpinning every US-facing perpetual product would need to be rebuilt.

For traders, the near-term metric worth tracking is funding rates alongside open interest. The August 2026 cascade was visible in positioning data before it happened. The next one will be too.