Perpetual futures introduction

Perpetual futures contracts are financial derivatives designed for traders to speculate on the price movements of assets without owning the underlying asset. They seek to replicate the performance of an underlying spot asset and do not have an expiration date, allowing you to continue to hold your positions until they’re closed or liquidated. Trading perpetual futures makes use of margin to enable trading with less upfront funds (i.e. your margin requirements) than traditional spot market trading.

To buy, sell, and carry perpetual futures contracts, you must reside in an eligible, non-US region. 

Perpetual futures contracts vs. futures contracts 

Perpetual futures contracts

Futures contracts

A financial agreement between two parties to buy or sell an asset at an unspecified point in the future

A financial agreement between two parties to buy or sell an asset at a specific price and time in the future 

Designed to trade close to the underlying asset price

Priced based on the forward looking market price of an underlying asset

Does not expire or settle

Has a specific expiration date

Can be held indefinitely

Can be settled physically or financially

Perpetual futures contract price and funding rate

A funding rate mechanism is designed to minimize discrepancies between the perpetual futures market and the index price of the underlying spot asset.

The mechanism is applied in 1 hour intervals to open positions.

How the funding rate works

  • It governs payments between holders of long and short positions based on the difference in the price of the contract and the underlying index price

    • When the funding rate is negative, users who have short positions pay a fee to users who have long positions 

    • When the funding rate is positive, users who have long positions pay a funding fee to users who have short positions

  • It represents the difference between the mark price of the perpetual futures market and the index price, which is equivalent to the spot market of the underlying asset

  • It ensures that the funding mechanism aligns the futures market price with the index price

Funding rate formula

TWAP (Premium, 1 hour, 1 second) * ɑ + (Previous Funding Rate) * (1-ɑ) 


Premium = (Mark Price - Index Price) / Index Price / 24

ɑ = smooth / (n + 1); 

smooth = 6;

n = number of previous periods used = 7 (funding interval) 

Derived market price vs. index price

Derived market price represents the derived market price for each venue calculated as the median of the last trade price – best bid and best offer prices. An average of the derived market price is calculated for each venue of the underlying asset to determine the index price.

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