Cryptopedia · Derivatives

Perpetual swap

A perpetual swap — or perpetual future — is a derivatives contract that tracks an asset's price with no expiry date. A periodic funding payment keeps it tethered to spot, which is why perps can trade indefinitely.

What it is

A traditional future settles on a fixed date. A perpetual never expires, so exchanges need another mechanism to stop its price drifting from spot: funding. Traders can hold leveraged long or short exposure for as long as they can meet margin.

How funding keeps it near spot

At each funding interval, one side pays the other a small percentage of position value. When the perp trades above spot (positive basis), longs pay shorts, nudging price back down; when below, shorts pay longs. Funding is therefore both a tether and a read on which side is crowded.

Why perps dominate

No expiry means no roll, and deep liquidity plus high leverage make perps the primary venue for directional crypto trading. That also concentrates leverage there, which is why perp funding, basis, and open interest are central to reading market positioning.

Perpetual swap — FAQ

How is a perpetual swap different from a regular future?

A regular future expires on a set date; a perpetual has no expiry and instead uses periodic funding payments to keep its price anchored to spot.

What is funding on a perpetual?

Funding is a periodic payment exchanged between long and short holders that pulls the perpetual's price back toward spot; positive funding means longs pay shorts.

Why do perpetuals use leverage?

Perps let traders post a fraction of the position value as margin, amplifying exposure. That leverage is what makes funding, liquidations, and open interest so important to watch.

What is the basis on a perpetual?

Basis is the gap between the perpetual price and spot. Funding reacts to that gap, so a rich basis and positive funding usually describe the same crowded-long condition.

Short squeeze

A short squeeze is a sharp upward move driven by shorts being forced to buy back. How it forms from crowded short positioning, and the mirror case — a long squeeze.

Liquidation cascade

A liquidation cascade is a self-reinforcing chain of forced liquidations that accelerates a price move. How it forms, why leverage fuels it, and how to spot the setup.

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