Perpetual futures
Also: Perpetuals · Perps
A derivative that tracks a spot price with no expiry date, held to that price by a periodic payment between long and short holders called funding.
An ordinary future expires and converges to spot at expiry. A perpetual never expires, so something else has to hold it near spot: at fixed intervals, whichever side is trading away from the index pays the other. Trading above spot means longs pay shorts, and the payment is what pulls the price back.
What funding actually tells you
It is a live measurement of crowding. Persistently positive funding means leveraged long positioning is paying to stay open, which is a cost that compounds and a position that unwinds badly. It is one of the few sentiment indicators in this market that is a payment rather than an opinion.
Where it breaks
- The index. A perpetual tracks whatever index it is defined against, and manipulating a thin index is easier than manipulating the market it claims to represent.
- Liquidation under thin books. Forced closing assumes depth that is present in normal conditions and absent in the conditions that trigger it.
- Spreading beyond crypto. The instrument is now applied to commodities and other underlyings, where the index question is harder and the participants are less familiar with funding.
For most institutional readers the useful part is not trading them but reading them: funding and open interest describe positioning that no survey captures.