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What Is a Perpetual Swap? Perp Swap vs Traditional Swap Explained

A perpetual swap is a cryptocurrency derivative contract that allows traders to speculate on the price of an asset with leverage and without an expiration date. The term is used interchangeably with perpetual futures (perps). Perpetual swaps are the most heavily traded instrument in crypto markets, with daily volumes routinely exceeding spot market volumes by multiples. On Perpmate, you can trade perpetual swaps on major cryptocurrencies with up to 40x leverage using USDC as collateral.

Origin of the Perpetual Swap​

The perpetual swap was introduced by BitMEX in May 2016. Arthur Hayes and the BitMEX team designed it to solve a fundamental problem with traditional futures contracts in crypto markets: expiration.

Traditional futures contracts expire on a set date (quarterly, for example). When they expire, traders must either settle or roll their positions into the next contract period. This creates several issues:

  • Fragmented liquidity: Volume is split across multiple expiration dates
  • Basis risk: The futures price can deviate significantly from spot near expiration
  • Operational burden: Traders must actively manage contract rollovers

BitMEX's solution was elegant: create a futures contract that never expires and use a periodic payment mechanism, the funding rate, to keep the contract price anchored to the spot price. This innovation became the foundation of modern crypto derivatives trading.

How Perpetual Swaps Work​

Perpetual swaps function through three core mechanisms:

1. Leverage and Margin​

Traders deposit margin (collateral) to open positions larger than their capital. On Perpmate, a trader with $1,000 USDC can open a position worth up to $40,000 at 40x leverage.

2. Funding Rate​

The funding rate is the mechanism that replaces expiration. Every 8 hours, payments are exchanged between long and short traders:

Market ConditionFunding RateWho Pays
Perp price > Spot pricePositiveLongs pay shorts
Perp price < Spot priceNegativeShorts pay longs
Perp price = Spot priceNear zeroMinimal payments

This creates economic incentives that keep the perpetual swap price close to the spot price at all times.

3. Liquidation​

If the market moves against a trader enough to deplete their margin, their position is automatically closed at the liquidation price. This protects the exchange and other traders from bad debt.

Perpetual Swap vs Traditional Futures​

FeaturePerpetual SwapTraditional Futures
ExpirationNoneFixed date (weekly, monthly, quarterly)
Price anchoringFunding rateConverges at expiration
SettlementCash-settled (USDC)Cash or physical delivery
Rollover neededNoYes, at each expiry
LiquidityConcentrated in one contractSplit across expiries
Funding costVariable funding ratePriced into basis (premium/discount)

For most retail crypto traders, perpetual swaps are the preferred instrument because they eliminate the complexity of managing expiration dates while providing continuous, concentrated liquidity.

Perpetual Swap vs Traditional Swap​

Despite sharing the word "swap," these are very different instruments:

  • Traditional swap (TradFi): An agreement to exchange cash flows. For example, an interest rate swap exchanges fixed-rate payments for floating-rate payments. These are over-the-counter (OTC) contracts between two specific parties.
  • Perpetual swap (Crypto): A leveraged derivative contract traded on an exchange. There is no exchange of cash flows between two named parties. Instead, traders open long or short positions against the exchange's order book.

The crypto industry adopted the term "swap" from BitMEX's original naming convention, but the product is functionally a futures contract, not a swap in the traditional finance sense.

Why Perpetual Swaps Dominate Crypto Trading​

Several factors explain why perpetual swaps account for the majority of crypto derivatives volume:

  1. Simplicity: No expiration management, no rollover costs, no basis tracking
  2. Liquidity: All trading activity concentrates in a single contract per asset
  3. Flexibility: Go long or go short with equal ease
  4. Capital efficiency: Leverage allows traders to maximize their capital exposure
  5. 24/7 availability: Unlike traditional futures markets, crypto perpetual swaps trade around the clock

Trading Perpetual Swaps on Perpmate​

When you trade on Perpmate, you are trading perpetual swaps. The process involves:

  1. Deposit USDC as your trading collateral
  2. Select an asset (BTC, ETH, SOL, and more)
  3. Choose your leverage (up to 40x on major pairs)
  4. Open a position (long if you expect price to rise, short if you expect it to fall)
  5. Manage your risk with stop-loss and take-profit orders
  6. Close your position whenever you choose; there is no expiration forcing you out

For a deeper comparison of perpetual and traditional futures, read our guide on perpetual futures vs traditional futures.