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What Are Perps? Complete Guide to Perpetual Futures Trading

Perps, short for perpetual futures or perpetual contracts, are a type of cryptocurrency derivative that allows traders to speculate on price movements without an expiration date. Unlike traditional futures contracts that expire on a specific date, perpetual futures can be held indefinitely, making them one of the most popular trading instruments in crypto markets.

How Perpetual Futures Work​

Perpetual futures track the price of an underlying asset (like Bitcoin or Ethereum) through a mechanism called the funding rate. This system keeps the perp price closely aligned with the spot market price by having traders periodically pay or receive small fees based on market conditions.

When you trade perps, you can use leverage up to 40x, which means you can control a position worth much more than your actual capital. For example, with $1,000 and 40x leverage, you can trade as if you had $40,000.

Long vs Short Positions​

One of the key advantages of perpetual trading is the ability to profit from both rising and falling markets:

  • Going Long: You profit when the price increases. If you go long on BTC and Bitcoin rises from $50,000 to $55,000, you make money.
  • Going Short: You profit when the price decreases. If you short BTC and Bitcoin drops from $50,000 to $45,000, you make money.

This flexibility allows traders to potentially profit in both bull and bear markets, unlike spot trading where you can only profit when prices go up.

Practical Example​

Let's say you have $1,000 and believe Bitcoin will rise:

  1. You open a long position on BTC with 10x leverage
  2. Your effective position size is $10,000
  3. Bitcoin rises 5% from $50,000 to $52,500
  4. Your profit is 5% × 10 (leverage) = 50% = $500

However, leverage works both ways. If Bitcoin had dropped 5% instead, you would have lost $500, or 50% of your capital.

Understanding perps means knowing these related concepts:

  • Liquidation Price: The price at which your position is automatically closed to prevent further losses
  • Funding Rate: Periodic payments between long and short traders to keep perp prices aligned with spot
  • PnL (Profit and Loss): Your current profit or loss on a position
  • Take Profit (TP): An order to automatically close your position at a profit target
  • Stop Loss (TL): An order to automatically close your position to limit losses

Why Trade Perpetual Futures?​

Traders choose perps for several reasons:

  1. Leverage: Trade larger positions with less capital
  2. No Expiration: Hold positions as long as you want
  3. Profit in Any Market: Go long or short based on your market view
  4. High Liquidity: Perps markets typically have deep liquidity and tight spreads
  5. 24/7 Trading: Unlike traditional markets, crypto perps trade around the clock

Getting Started with Perps Trading​

Before trading perpetual futures, make sure you understand the risks involved. Leverage amplifies both gains and losses, and you can lose your entire position if the market moves against you.

For a complete guide, read our perpetual futures vs traditional futures or comprehensive perps guide. Learn about cross margining to better manage your risk.