perpetual agreement

What Is a Perpetual Futures Contract (PerpetualFutures)?

A perpetual futures contract is a type of derivative without an expiration date.

This crypto asset derivative enables traders to hold positions indefinitely without needing settlement on a fixed date. Exchanges use a funding rate to periodically settle between long and short positions, keeping the contract price closely aligned with the spot price. Traders can go long or short and use leverage to maximize capital efficiency.

There are two main margin types commonly found on exchanges: USDT-margined and coin-margined. USDT-margined contracts use stablecoins as margin and settlement currency, with profits and losses calculated in USDT. Coin-margined contracts use the underlying asset as margin, and P&L is denominated in that coin. Liquidations are generally triggered by the mark price, which is a reference price calculated from multiple market sources and algorithms to reduce the risk of accidental liquidations during sharp price moves.

Why Should You Understand Perpetual Futures Contracts?

Perpetual futures enhance capital efficiency and provide robust hedging tools.

For spot holders, perpetuals offer a way to hedge volatility. For example, if you own Bitcoin, opening an equal-sized short position via perpetuals can offset spot losses during downturns, stabilizing your overall portfolio value.

For active traders, perpetuals offer two-way trading opportunities and leverage. Going long amplifies profits in an uptrend, while going short enables gains during declines. Compared to margin borrowing for short selling, perpetuals offer deeper liquidity and more transparent costs, making them ideal for short-term and swing trading strategies.

On exchanges like Gate, perpetual futures cover major cryptocurrencies and trending new coins. They support advanced order types—limit, stop loss/take profit—as well as risk management features like isolated and cross margin to suit different trading styles.

How Do Perpetual Futures Contracts Work?

Perpetuals rely on the funding rate to anchor prices to the spot market, with margin used for risk management.

The funding rate is a periodic fee exchanged between long and short positions: when the contract price is above spot, longs pay shorts; when below, shorts pay longs. This mechanism incentivizes price convergence with spot. Most platforms settle funding every eight hours, with the rate fluctuating based on market deviation and supply-demand dynamics.

Margin and leverage define the risk buffer for each position. Margin is collateral required to open a position, while leverage allows you to control larger trades with smaller capital. Maintenance margin is the minimum threshold to avoid liquidation—if losses cause margin to drop below this level, the system partially or fully closes your position (liquidation).

Mark price is used for liquidation triggers and P&L calculations. Unlike last traded price, it is a composite index derived from multiple market sources, designed to prevent unfair liquidations due to sudden price spikes or drops.

Here’s a simplified workflow: You open a 5x leveraged long BTC position on Gate using USDT-margined perpetuals. If the funding rate is positive, you pay shorts at settlement; if the market drops rapidly and the mark price hits your maintenance margin line, the system will first reduce your position then liquidate as per platform rules—protecting against excessive debt.

How Do Perpetual Futures Perform in the Crypto Ecosystem?

Perpetuals exhibit high activity and liquidity both on centralized exchanges and on-chain protocols.

On CeFi platforms like Gate, trading volume in perpetuals for popular tokens often surpasses spot trading—especially during new coin listings, macro data releases, or major events. Funding rates shift rapidly with market sentiment: positive during bullish periods, negative when bearish.

In DeFi, platforms like dYdX, GMX, and Perpetual Protocol offer on-chain perpetual trading. On-chain perpetuals use oracle pricing and automated market making to maintain price stability. Their fee structure typically includes trading fees, funding rates, and slippage—suited for native DeFi users.

For arbitrage and hedging, perpetuals are often paired with spot or other derivatives. Market makers may use short perpetuals to hedge spot inventory; traders exploit cross-platform funding rate differences by opening positions on low-fee exchanges and taking opposing trades on high-fee ones to earn rate spreads and arbitrage opportunities.

How Can You Reduce Risks in Perpetual Futures Trading?

Use appropriate leverage, strict risk controls, and cost management to mitigate risks.

Step 1: Limit leverage. Beginners should keep leverage at 3-5x or lower. Higher leverage brings liquidation prices closer, reducing error tolerance.

Step 2: Prefer isolated margin mode. Isolated margin confines risk to individual positions so a single trade doesn’t jeopardize your entire account balance. Cross margin is more flexible but demands advanced risk management.

Step 3: Set stop loss and take profit orders. When trading on Gate, configure trigger prices and order prices simultaneously to avoid emotional decisions and lock in risk/reward targets.

Step 4: Monitor funding rates and holding costs. Extended positions can be eroded by funding payments over time. If funding is persistently positive while you’re long, consider reducing position duration or hedging funding exposure.

Step 5: Trade high-liquidity pairs at optimal times. Avoid periods of extreme volatility or low liquidity to minimize slippage and forced liquidation risk.

Step 6: Build positions in tranches and reduce size promptly when needed. Entering/exiting in batches reduces timing errors; proactively scaling down losing trades before losses snowball improves safety.

What Are the Latest Trends or Data in Perpetual Futures?

Over the past year, derivatives have dominated trading volumes, with open interest and liquidation volatility worth watching.

Throughout 2025, derivatives accounted for roughly 75%–80% of total crypto trading volume; perpetual contracts made up over 85% of all derivatives. Data comes from quarterly industry reports and exchange disclosures.

Q4 2025 stats show Bitcoin perpetual open interest repeatedly neared or exceeded $30 billion network-wide—signaling a marked rise in market exposure. Meanwhile, funding rate volatility in trending sectors widened weekly: typical ranges were ±0.01% to ±0.05% every eight hours, with extremes sometimes surpassing ±0.2%.

In 2025’s major market swings, daily liquidation totals often exceeded $1 billion globally—highlighting concentrated risk from high-leverage positions. Compared to 2024, both peak liquidations and frequency were more pronounced during bull phases.

On-chain perpetual activity grew steadily from H2 2025 through Q4: dYdX, GMX, etc. saw higher volumes and open interest. While on-chain perpetuals still represent a single-digit share of total volume, user adoption and liquidity are climbing alongside more stable rates and deeper order books.

Regarding exchange competition: Binance maintained top market share; OKX and Bybit followed; Gate increased activity in mid-cap tokens and new coin perpetuals—improving risk limits and funding rate displays for a smoother onboarding experience.

What Is the Difference Between Perpetual Futures and Delivery Futures?

The key distinctions are in expiration terms and price anchoring mechanisms.

Perpetual futures have no expiry; prices are kept near spot via funding rates. Delivery futures have a set expiration date—settling at expiry via index price or physical delivery—with potential basis spread versus spot until maturity.

Cost structures differ: perpetuals mainly incur funding rates and trading fees; delivery futures involve basis shifts and roll costs but typically lack meaningful funding payments.

Use cases vary as well: perpetuals suit long-term holding with flexible entry/exit; delivery futures are preferable for calendar spreads or event-driven basis strategies.

In practice, many traders combine both: using perpetuals for short-term volatility hedging or liquidity needs, while deploying delivery futures for medium- or long-term basis management or roll strategies.

Key Terms

• Perpetual futures contract: A derivative that allows traders to go long or short with leverage without an expiry date.
• Leverage trading: Using borrowed capital to magnify returns or losses.
• Funding rate: The periodic fee exchanged between long and short positions in perpetual contracts to keep prices close to spot.
• Liquidation: When the exchange automatically closes positions due to insufficient margin to prevent negative balances.
• Opening & closing positions: Opening means initiating a new trade; closing means exiting an existing position to realize profit or loss.

FAQ

What are common pitfalls for beginners in perpetual futures trading?

The most frequent pitfalls are excessive leverage-induced liquidations and ignoring funding rates. Perpetual contracts allow up to 10x or even 100x leverage—but higher leverage means less room for error; any adverse price move can trigger liquidation. Perpetuals also charge funding rates every eight hours—holding positions incurs additional costs. Beginners should start with low leverage (1–3x), set stop losses, and avoid going all-in on one direction.

What advantages do perpetual futures have over spot trading?

The biggest advantage of perpetual futures is the ability to profit from falling markets (short selling) and improved capital efficiency. Spot trading only allows buying for upside; perpetuals let you go long or short—creating profit opportunities in downturns too. Leverage lets you control larger trades with the same capital. However, greater potential comes with higher risk—requiring disciplined risk management.

What are the requirements for trading perpetual futures on Gate?

To trade perpetuals on Gate, you must complete identity verification (KYC) and maintain sufficient margin (typically denominated in USDT or other stablecoins). Each contract has specific minimum position size and margin requirements—new users should start small to get familiar. Gate offers various contract types and leverage options so you can tailor exposure according to your risk tolerance.

What’s the purpose of mark price versus index price in perpetual futures?

Mark price prevents unfair liquidations; index price is a weighted average across major spot exchanges. The system uses mark price—not last trade price—to determine liquidation events, preventing unjust liquidations during sudden dumps or pumps. Understanding both helps assess risk exposure and distance from liquidation more accurately.

How is the funding rate calculated for open perpetual positions?

The funding rate represents periodic transfers between longs and shorts to keep contract prices near spot. In bullish markets (rate positive), longs pay shorts; in bearish markets (rate negative), shorts pay longs. Funding settles every eight hours—longer holding times mean more payments. On Gate, you can monitor funding rates to gauge sentiment; when rates spike, consider reducing exposure or adjusting strategy accordingly.