What is perpetual contract? What are the rules?

Perpetual contracts offer traders flexibility with no expiration dates, continuous settlement, and funding mechanisms to maintain price alignment with underlying assets.

Oct 21, 2024 at 10:48 pm

What is a Perpetual Contract?

A perpetual contract, also known as a perpetual swap or inverse futures contract, is a type of financial derivative that mimics the behavior of a futures contract but without an expiration date. This means that perpetual contracts can be held indefinitely, allowing traders to speculate on the price of an underlying asset for an extended period.

How Does a Perpetual Contract Work?

Unlike traditional futures contracts, perpetual contracts do not have a pre-defined settlement date. Instead, they are continuously traded, with traders able to enter or exit their positions at any time. To keep the price of the perpetual contract in line with the price of the underlying asset, it employs a mechanism called funding.

Funding:

Funding is a periodic payment or charge that is applied to traders' positions in accordance with the market's supply and demand for perpetual contracts. When there is an imbalance between buyers (long positions) and sellers (short positions), the market will pay a premium to incentivise traders to take the opposite position and bring the market back to equilibrium.

Mark Price:

The mark price of a perpetual contract represents the fair market value of the underlying asset at any given moment. It is determined by a weighted average of recent trade prices and is used as the benchmark for calculating funding and profit/loss.

Liquidation:

Traders must maintain a sufficient amount of margin (collateral) on their perpetual contract positions. If the value of a trader's position falls below a certain threshold, they will face liquidation. Liquidation occurs when the broker automatically closes a trader's position to recover the lost margin.

Trading Rules:

Leverage: Traders can use leverage to trade perpetual contracts, which allows them to control a larger position with a smaller amount of capital. However, it is important to note that leverage also amplifies both profits and losses.
Margin: Traders must maintain a minimum level of margin to cover potential losses. Insufficient margin can result in liquidation.
Mark Price and Settlement: Perpetual contracts are settled against the mark price, which acts as the reference price for determining profit/loss. Unlike futures contracts, perpetual contracts allow for continuous settlement without predefined expiry dates.

Disclaimer:info@kdj.com

The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research！

If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.

Fear & Greed Index

Trade Now

Biggest Gainers

KEEP

$0.1021

55.74%

Trade Now
AURA

$0.1744

26.55%

Trade Now
USTC

$0.0140

25.32%

Trade Now
AERO

$0.7568

23.67%

Trade Now
PUNDIAI

$8.57

18.06%

Trade Now
SKY

$0.0894

17.47%

Trade Now

Latest Crypto News

1inch reveals how to make decentralized finance (DeFi) truly secure and institutionally acceptable.
2025-06-14 13:30:12
Neo Pepe Coin ($NEOP) Is the New King of Memecoins. Here's Why Whales Are Betting on It
2025-06-14 13:30:12
The cryptocurrency market experienced a notable upswing on Wednesday, June 14, 2024, with many digital assets posting significant gains.
2025-06-14 13:25:12
Michael Saylor Declares the Era of Crypto Winters Is Officially Over
2025-06-14 13:25:12
Corporate Bitcoin Reserve Strategy taking flight…
2025-06-14 13:20:13
Dogecoin (DOGE) price just crossed a critical psychological level, and both the hourly and daily charts suggest this move might not be a fluke.
2025-06-14 13:20:13

Related knowledge

Sentiment indicators in contract trading: How to use the long-short ratio to make decisions?

Jun 14,2025 at 07:00am

What Are Sentiment Indicators in Contract Trading?In the realm of cryptocurrency contract trading, sentiment indicators play a crucial role in gauging market psychology. These tools help traders understand whether the market is dominated by bullish or bearish expectations. Among these indicators, the long-short ratio stands out as one of the most tellin...

Perpetual contract flash crash response: How to set up automatic risk control?

Jun 13,2025 at 06:28pm

Understanding Perpetual Contract Flash CrashesA flash crash in the context of perpetual contracts refers to a sudden, sharp, and often short-lived drop or spike in price due to high volatility, thin order books, or algorithmic trading activities. These events can lead to massive liquidations across long or short positions on trading platforms. Traders m...

Take-profit strategy in contract trading: Comparison between dynamic take-profit and fixed take-profit

Jun 14,2025 at 07:08am

What Is Take-profit in Contract Trading?In the realm of cryptocurrency contract trading, take-profit refers to a predefined price level at which a trader automatically closes a profitable position. This mechanism is essential for risk management and profit locking. Traders use take-profit orders to ensure they secure gains without being swayed by emotio...

Perpetual contract high-frequency trading strategy: How to improve the winning rate of short-term brushing?

Jun 13,2025 at 04:14pm

Understanding the Basics of Perpetual ContractsPerpetual contracts are derivative financial instruments that allow traders to speculate on the price movement of an asset without owning it. Unlike traditional futures, perpetual contracts have no expiration date, making them ideal for short-term trading strategies like high-frequency trading (HFT). In the...

Impermanent loss in contract trading: How to reduce losses when hedging?

Jun 14,2025 at 10:49am

Understanding Impermanent Loss in Contract TradingImpermanent loss is a term commonly associated with liquidity provision in decentralized finance (DeFi), but it also plays a significant role in contract trading, especially when traders hedge their positions. In the context of contract trading, impermanent loss occurs when a trader opens both long and s...

Futures contract trading period analysis: Which time points have the best liquidity?

Jun 14,2025 at 02:35am

Understanding Futures Contract Trading PeriodsIn the world of cryptocurrency trading, futures contract trading has become a dominant form of derivative trading. Unlike spot trading, futures contracts allow traders to speculate on the future price of an asset without owning it. The trading period of a futures contract typically includes several phases: p...